Preamble

The House met at half-past Two o'clock

PRAYERS

[MADAM SPEAKER in the Chair]

Oral Answers to Questions — FOREIGN AND COMMONWEALTH AFFAIRS

Eritrea

Mr. Barnes: To ask the Secretary of State for Foreign and Commonwealth Affairs what is his policy on the recognition of Eritrea; and if he will make a statement.

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Mark Lennox-Boyd): We warmly welcome the outcome of the referendum on Eritrea's status. We plan to announce our decision on diplomatic recognition by the time the Eritreans formally declare their independence.

Mr. Barnes: Immediately after recognition, should not Eritrea be given massive economic aid from the world community? It has suffered considerably from the civil war which has destroyed its infrastructure, it suffered from a drought last year and it has half a million refugees to absorb from the Sudan. In those circumstances, is not our proposal for £500,000 worth of aid for the coming year inadequate, given that the economic recovery plan will cost $2.5 billion?

Mr. Lennox-Boyd: As the hon. Gentleman knows, we have given terrific humanitarian assistance to Eritrea— some £12 million worth of aid since January 1992. We are proposing a new bilateral programme of £500,000 worth of assistance a year for that part of the world. With regard to the rehabilitation of displaced persons, the United Nations department of humanitarian affairs will visit Eritrea shortly and make a report. We wish to reserve judgment until we know the outcome of that report before considering any further matters.

Mr. Bowis: Is my hon. Friend aware that the message that I and the hon. Member for Leeds, West (Mr. Battle) bring back from Eritrea is that the people there are in remarkably good heart after 30 years of war and devastation and now need to face the next 30 years of economic war, which they will win with world support. Will he examine the possibility of supporting the World bank's initiative on its recovery programme, as well as the United Nations Development Programme for returnees and access to the Lom. IV convention, and also see whether Britain can do something to help with the necessary reforms of the civil service, support for the police and especially the improvement in literacy, given that Eritrea has chosen English as its second language?

Mr. Lennox-Boyd: All those matters will certainly be examined—I can say no more than that to my hon. Friend or the hon. Member for Leeds, West (Mr. Battle), both of whom attended the referendum as observers. The British Government warmly welcome the referendum result, wish to help Eritrea in the future and will consider their relationship with Eritrea on a positive basis from now on.

Mr. Battle: I thank the Minister for his warm welcome for the referendum result. It was a privilege to be present at the referendum on 23 and 25 April. It was a free and fair vote that represented liberation of the Eritrean people after 30 years of war. Can the Minister ensure that some substantial bilateral and multilateral aid goes immediately to the reconstruction of the vital port of Massawa, which was devastated by bombing and recently revaged by a rare hurricane? That port is central to movements of food aid and the reconstruction of the whole country.

Mr. Lennox-Boyd: There are enormous demands in Eritrea for all sorts of assistance. We are concentrating on the priorities for English language training and agriculture, but we are examining the whole situation.

United Nations Peace Operations

Dr. Goodson-Wickes: To ask the Secretary of State for Foreign and Commonwealth Affairs in how many United Nations peacekeeping or peace monitoring operations the United Kingdom plays a part.

The Minister of State, Foreign and Commonwealth Office (Mr. Douglas Hogg): The United Kingdom contributes military personnel to five United Nations peacekeeping operations, including 600 to the force in Cyprus, 15 to the force on the Iraq-Kuwait border, 15 in western Sahara, 122 to the force in Cambodia and 2,500 to the United Nations protection force in former Yugoslavia.

Dr. Goodson-Wickes: The House will be impressed by the extent of that list, representing as it does the country's commitment to peacekeeping in the post-cold war period and, above all, the high regard in which British troops are held worldwide. However, does my right hon. and learned Friend agree that we have reached the point in history at which the whole concept and mechanism of United Nations peacekeeping, and possibly peacemaking, should come under review? In that context, will my right hon. and learned Friend give an assurance that, given Britain's permanent membership of the United Nations Security Council and our reputation and abilities, we will maintain the capability to play a full and prominent part?

Mr. Hogg: My hon. Friend is right to stress the ever-increasing nature of the peacekeeping operations conducted by the United Nations. He is also right to say that British forces should make a significant contribution to those operations. We do so especially in the present operations in Bosnia to convey humanitarian supplies. However, I think that my hon. Friend would also agree that we cannot participate in every peacekeeping mission: we have to determine priorities.

Mr. Rogers: I am sure that the Government, with all of us in the House, view with great concern the decision of the Russians to veto the reform of the United Nations financing of the peacekeeping force in Cyprus. Combined with the withdrawal of the Canadian contribution some


time in June, that will inevitably put an added burden on this country. In view of the present poor state of our defence forces and the Treasury-driven cuts in the "Options for Change" process, will we be able to fulfil those commitments, which are limited at present?

Mr. Hogg: The hon. Gentleman was right to draw attention to the Russian vote last night. That is a matter which must be considered. But I return to the point that I made. We cannot participate in every peacekeeping force. We have to make choices. Our contribution to peacekeeping forces is recognised as among the most effective made by any member of the United Nations.

Mr. Colvin: If we participate in the number of peacekeeping activities that my right hon. and learned Friend said, that means that there are another 12 in which the United Kingdom is not involved with the United Nations. There are a further eight civil wars going on around the world where the United Nations is not involved and another 25 flashpoints where war could break out at any time, so the role of the United Nations is bound to increase.
My hon. Friend the Member for Wimbledon (Dr. Goodson-Wickes) has a good point. The United Nations must convene, deliberate and determine how it will reach agreement on keeping the peace throughout the world and implementing the Secretary-General's "Agenda for Peace", and how it will enforce Security Council resolutions which it passes.

Mr. Hogg: My hon. Friend is right to draw attention to the many parts of the world and operations in which we could make a contribution. That rather emphasises the point that I have already made. One must make choices about where the priorities lie. It is also worth reminding my hon. Friend that, for example, the Conference on Security and Co-operation in Europe can operate in a peacekeeping role, sometimes under the direct authority of the United Nations and sometimes free standing. Therefore, it is a question of making priorities and seeing whether regional organisations can sometimes take some of the strain.

Sir David Steel: Does the Minister accept that the number of forces required for peacekeeping operations would be smaller if they could be deployed in a more timely manner? Does not that underline the importance of the Secretary-General's report "Agenda for Peace", in which he talks about member nations ascribing and allocating forces on a permanent basis to the United Nations? Is that now part of Her Majesty's Government's official policy and, if so, what are the implications for "Options for Change"?

Mr. Hogg: The right hon. Gentleman is right to say that sometimes timely action can prevent a more substantial contribution later. There is rather a good example of that in Macedonia where, as the right hon. Gentleman knows, there is now a battalion of United Nations authorised troops in a pre-emptive role. I suspect that over the years we shall see rather more of that.

Hungary

Mr. Jenkin: To ask the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on relations with Hungary in the light of his recent visit to Hungary.

The Secretary of State for Foreign and Commonwealth Affairs (Mr. Douglas Hurd): I accompanied Her Majesty the Queen on part of her highly successful state visit to Hungary last week. I have had talks with the President, the Prime Minister and the Foreign Minister. Our relations are in good shape. The Hungarians know that we support their wish to become full members of the European Community when practicable and that meanwhile we are working to make a success of the Community's association agreement with them, particularly by opening the Community's market increasingly to their goods. British investment in Hungary and trade with Hungary are growing and there is scope for plenty more of both. The British know-how fund is an acknowledged success, with many good projects coming forward.

Mr. Jenkin: Does my right hon. Friend agree that the early accession of Hungary and other states like it to the European Community is at the core of our relations with that country? Can he say when that might be? As the European Parliament's consent is required for the accession of new members to the treaty of Rome, will existing member states be required to give up more power in order to obtain that consent?

Mr. Hurd: I do not think that my hon. Friend's second point is very strong. The treaty of Rome provides under article 237 that the Parliament must agree to new accessions. That is not changed under the proposed treaty of Maastricht. Any change in the powers of Parliament is a matter for treaty. But my hon. Friend is right on his first point. Full membership of the Community is one of Hungary's main objectives and we are in favour of its achieving that as soon as practicable. It knows and we know that it is not possible to set an exact date at present.

Dr. Howells: Did the Secretary of State make it clear to the Hungarian Government that the British Government would take a dim view of any encouragement that might be given to the ethnic Hungarians who live in Transylvania and to the secessionist groups that are beginning to surface there?

Mr. Hurd: The Hungarians expressed the view clearly to me that they do not seek a change in the international borders of Romania, but they are understandably anxious that the Hungarians in Transylvania should be given a proper degree of autonomy.

Yugoslavia

Mr. Ancram: To ask the Secretary of State for Foreign and Commonwealth Affairs what representations he has received on achieving a long-term solution to the political problems in the former republic of Yugoslavia.

Mr. Malcolm Bruce: To ask the Secretary of State for Foreign and Commonwealth Affairs what measures he assesses to be the most effective in bringing to an end the fighting in Bosnia Herzegovina.

Mr. Winnick: To ask the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the latest United Kingdom position over the conflict in former Yugoslavia.

Mr. Connarty: To ask the Secretary of State for Foreign and Commonwealth Affairs what discussions have taken place with other United Nations countries regarding the conflict in former Yugoslavia; and if he will make a statement.

Mr. Hurd: Despite the intransigence of the Bosnian Serbs, we continue to regard the Vance-Owen plan as an indispensable lead into peace in Bosnia. Our policies are directed towards getting the Bosnian Serbs to accept the plan, carry it out in good faith and desist from further attacks. That means increasing the pressure on them by stepping up still further the growing effectiveness of sanctions and testing the declared will of President Milosevic to carry out his intention to cut off supplies to the Bosnian Serbs and allow international monitoring of the border. In case the Bosnian Serbs cannot be persuaded to comply, we are considering with our partners and allies the possibility of using stronger measures, not excluding military options. We also agreed in the Foreign Affairs Council on Monday on the need to express to the Government of Croatia our dismay at recent actions by Bosnian Croats in central Bosnia and around Mostar.

Mr. Ancram: I thank my right hon. Friend for that reply and welcome the fact that he has not been driven off his sensible dual-track approach by ill-judged insults from certain safely distant American politicians during the past few days. In that context, will my right hon. Friend welcome the constructive statement from the American Government today that deployment of United States ground troops in Macedonia is being considered, particularly as it will give the American public a better appreciation of the complexities of what is happening on the ground throughout the former republic of Yugoslavia?

Mr. Hurd: I am obliged to my hon. Friend. I do not thing that it serves any purpose to start exchanging accusations across the Atlantic. I do not think that some of those remarks would have been made if those concerned had seen the exchanges that have taken place between the allies in recent days, or if they had understood the nature of the effort and the risks which some of us, including Britain, are making in Bosnia at the present time. I agree with my hon. Friend's second point. If the United States were to decide to reinforce the Nordic battalion in Macedonia already referred to, that would be welcome from our point of view.

Mr. Malcolm Bruce: Does the Foreign Secretary accept that it is more than ever important that aggression, wherever it comes from, is not seen to be rewarded? As more and more ground is gained by that aggression, with the loss of Srebrenica and Zepa, it becomes more difficult to secure the peace. Can the Foreign Secretary therefore say what measures he will recommend to the allies to ensure that Gorazde does not suffer the same fate?

Mr. Hurd: The Serbs have not, of course, occupied either Srebrenica or Zepa. In my main answer I dealt, I think, with the hon. Gentleman's point. We believe that so long as the Bosnian Serbs continue to push forward in eastern Bosnia, the pressures against them must be built

up. The new element in the last few weeks is the declared intention of President Milosevic to put pressure on the Bosnian Serbs. That is being partly carried out. It needs to be tested. What we and the Americans have recently agreed, and what is now being carried forward in the Security Council, is that we should propose and agree that there should be monitors along the border between Bosnia and Serbia so as to prevent the flow of illegal traffic.

Mr. Winnick: Is the Foreign Secretary aware that there is bound to be much disappointment that the leading western countries have not—so far at least—been able to get their act together in dealing with Serbian aggression and vile ethnic cleansing? As for the Foreign Secretary's reference to Belgrade, is not it a fact that if the Belgrade leadership appears to be—I emphasise "appears to be"—dissociating itself from the Bosnian Serb warlords, it is because of the fear of armed intervention? Should not that lesson be carefully learnt, be it here in western Europe or in the United States?

Mr. Hurd: The allies are agreed on the effort which we are carrying forward. That is to say, the Europeans, the Americans and the Russians are agreed on the need for a political process—I have mentioned the Vance-Owen plan—on the need for effective sanctions, with the Americans and the Europeans working together, and on the need for the humanitarian effort: our troops on the ground, a big United Nations effort and the United States and other air drops. All that is agreed and is going forward. There is consultation on further measures. As for the hon. Gentleman's second point, one can never be sure what moves people to change their policy. It may be the undoubtedly growing effectiveness of sanctions. It may be, as he suggested, the hints of possible military action, which we are not excluding. One cannot be sure. Nor is it certain that the change is a substantial and permanent one. That is what now has to be tested.

Mr. Connarty: Is the Foreign Secretary aware of the perception outside the House of the lowering cloud of shame over the Governments of Europe and America because of the lack of military intervention? That does not include, obviously, the troops we have put there who are giving humanitarian aid. Is the Foreign Secretary aware that at a meeting in this very House the Bosnian Foreign Secretary and the Bosnian UN envoy said that we are keeping their people alive until the Serbs come to kill them? Is not it time to end the delay, to stop buck-passing to the Americans and to commit ourselves to military intervention to deal with ethnic cleansing and create a safe haven now for those Bosnians who are left in their own country?

Mr. Hurd: The hon. Gentleman is the first I have heard in the House, throughout many months of debate, to propose a military intervention on the ground to impose a particular solution. No Government whom I know of, and certainly not the Government of the United States, propose that. The House debated this matter on 29 April. I carried away from that debate the very strong feeling from all parts of the House, although not from all individuals, that hon. Members were in favour of the pressures that we are building up and of the line that we are taking and that they were also in favour of substantial prudence before going into further types of involvement


without calculating the consequences. The kind of phrases that fell from the hon. Gentleman's lips are a little bit easy for those who do not carry the responsibility for the result.

Mr. Cormack: Is my right hon. Friend aware that the situation in and around Mostar is becoming increasingly critical? Is he further aware that President Izetbegovic has asked for Mostar to be declared a protected zone? Will he give his support to that request?

Mr. Hurd: I had not heard of that request. The situation in Mostar is serious, but the Spanish troops—the European troops who are escorting humanitarian convoys in that area—have done their best to calm things down. Ceasefires have been negotiated and I believe that there has been some dying away of the fighting, although it comes and goes. We take the matter very seriously and I know that the German Foreign Minister is going to Zagreb. The presidency of the Community, as a result of our meeting on Monday, will express our deep concern to the Croats about the matter, as there is no doubt that the main responsibility is theirs.

Sir Geoffrey Johnson Smith: I understand my right hon. Friend's reluctance to avoid trading insults across the Atlantic, but is not there support in the Senate, and possibly in the Administration of the President, for arming the Bosnian Muslims? Is it still the Government's view that that would seriously jeopardise the humanitarian relief that we give the Bosnian Serbs, Muslims and others and that were we to agree to such an American request that work would have to be abandoned and other initiatives that have already taken would be jeopardised?

Mr. Hurd: The House discussed this subject on 29 April and the right hon. Member for Copeland (Dr. Cunningham) and other hon. Members supported our reasons for having reservations about this option, not the least of which is the one that my hon. Friend mentioned. It is hard to imagine how the humanitarian effort and the troops escorting the convoys could continue—at least in their present form—if that option were taken. No option has been excluded, because the situation may change, but our position on that particular option has not changed.

Dr. John Cunningham: Is not one of the tragic lessons of the middle east that pouring armaments into areas of instability and conflict does not lead to early political solutions or to peace? Should not we emphasise that point to those who want the United Nations arms embargo on Bosnia to be ended?
Will the right hon. Gentleman reconsider what he said a few moments ago about the Croatians? Is not an expression of dismay a slap on the wrist for the Croatians? Should not we take the same attitude to the Croatians as we take to the Bosnian Serbs and is not the time long overdue for the Security Council to make explicit its ultimatum to the Serbs and the Croatians that, if they do not sign the ceasefire and uphold it, limited air strikes will be used against them?
The right hon. Gentleman should support, as he has hitherto, the urgent need to strengthen the United Nations presence in Macedonia and significantly to increase the presence of Conference on Security and Co-operation in Europe monitors in Kosovo to make it clear to President Milosevic that we need convincing of his good faith in respect of Kosovo and Macedonia.

Mr. Hurd: I have sketched out again our position on air strikes and the arms embargo, which has not really altered since our debate on 29 April. There was some discussion in the Foreign Affairs Council on Monday about whether we should begin to think of sanctions against Croatia. We reached the conclusion that that was not justified at this stage, but the Croatians should have no doubt that, if the kind of incident that occurred in central Bosnia and has now occurred again in Mostar continues, they cannot expect to have the kind of relationship with the European Community or the international community that they expected.
I have already answered the right hon. Gentleman's point about Macedonia, where a Nordic battalion is in place. If it were strengthened—for example, by an American decision to put ground troops into Macedonia —that would be welcome. As the right hon. Gentleman knows, we have recognised Macedonia; it is a member of the United Nations and Lord Owen and Cyrus Vance are trying to sort out the detailed implications. I agree with the right hon. Gentleman's point about strengthening the CSCE presence in Kosovo.

Sir Michael Neubert: To ask the Secretary of State for Foreign and Commonwealth Affairs when he next expects to meet his European Community counterparts to discuss developments in former Yugoslavia.

Mr. Douglas Hogg: Former Yugoslavia will be discussed at the next General Affairs Council in Luxembourg on 8 June.

Sir Michael Neubert: I pay full tribute to the humanitarian contribution made by British forces in Bosnia, but is not the painful reality that it has saved thousands from being starved to death at the price of thousands of others being shelled to death and that Cambodian-type atrocities will continue unless effective deterrent action is taken? Does not relevant 20th century experience tell us that for defending freedom from ruthless aggressors there is no substitute for a strong Anglo-American alliance, compared with which an attempt to secure agreement and joint action among 12 European nations is little more than a mirage?

Mr. Hogg: It is right to be absolutely clear that many thousands of people in Bosnia are now living who would have been dead, but for the delivery of humanitarian supplies over many months, and that much credit for that goes to the British troops now in Bosnia and to the Royal Air Force. We must also recognise that what we face in Bosnia is essentially a civil war. It is true that it has been supported by men and munitions from Serbia and, as has been made plain by many hon. Members, from Croatia too. In essence, however, it is a civil war and we need to reinforce the pressure now on Serbia to get President Milosevic to put yet more pressure on the Bosnian Serbs to subscribe to a peace agreement.

Mr. Jim Marshall: Does the Minister agree that we must learn lessons from the tragedy now occurring in Yugoslavia, one of which is that the precipitate recognition of the new republics by the European Community exacerbated the problems there? Does the Minister further agree that if there is recognition in other parts of Europe in the coming months and years, hand in hand with recognition there must be an agreement


recognising the rights of minorities both within the state with which they reside and in any neighbouring state with which they may have linguistic or other relations?

Mr. Hogg: It is true that the British Government were more cautious about recognising Croatia than were a number of our European colleagues, but by the time we recognised Croatia we all judged that the grounds for refusing recognition no longer existed. The same applied in the case of Bosnia. The hon. Gentleman will keep in mind that there was a referendum, and an independent report commissioned by the EC, in the light of which it would have been difficult to withhold recognition of Bosnia. The hon. Gentleman makes a fair point about minority rights, and it is certainly true in the context of the entirety of former Yugoslavia that the preservation of minority rights within the frontiers is of key importance to any peace settlement.

Mr. Fry: When my right hon. and learned Friend talks to our European partners, will he point out that although the British people are anxious to play their part in resolving the problems in Bosnia, they would appreciate greater assistance from other members of the Community in terms of sending their forces to be shot at and put into danger? If there is to be a general Community solution to the problem, it should not be left mainly to the British and French forces to carry out the peacekeeping in the name of the European Community. I believe that if that were achieved, my right hon. and learned Friend would find much greater agreement about the way forward, and perhaps rather less resistance to the effective use of British forces.

Mr. Hogg: My hon. Friend makes a point of substance. He was right to pay tribute to the French Government for their very substantial contribution. The Spanish Government, too, have contributed. There are also countries which, by reason of their history or their constitutions, or both, would find it rather difficult to make a contribution in what was Yugoslavia.
On the question of peacekeeping, which is a different matter from what is currently happening in the former Yugoslavia, we look for a substantial contribution from outside the European Community. Naturally, I have in mind the deployment of substantial numbers of ground troops by the United States if a peacekeeping force were organised to underpin an agreement.

South Africa

Miss Lestor: To ask the Secretary of State for Foreign and Commonwealth Affairs what discussions he has had with representatives of the South African Government following the murder of Chris Hani; and if he will make a statement.

Mr. Lennox-Boyd: We have made every effort to help minimise the effect of the tragic assassination of Chris Hani on the negotiating process in South Africa, including the provision of a senior police officer to help with the investigation.

Miss Lestor: Following the distinguished and dignified address given by Mr. Nelson Mandela during his recent visit to this country, as well as the death of Chris Hani and the revelation of the alleged plots against other people involved in the constitutional process, will the Minister

press on Mr. de Klerk and all others the urgent need to secure an early settlement in the constitutional discussions so that the next stage may be reached? Will the Government also make it perfectly clear to Chief Buthelezi that they will provide no support at all for his proposals concerning separatism, which at best would delay the constitutional talks and at worst could create in South Africa the sort of tragedy now engulfing Yugoslavia?

Mr. Lennox-Boyd: I wholly endorse the hon. Lady's words about Nelson Mandela's visit last week, which was interesting and remarkable to us all. With regard to the constitutional process in South Africa, the hon. Lady will be aware that negotiations reopened on 26 April—a week after Chris Hani's dreadful assassination. The negotiating council has now agreed that a date for the election should be set before June and that the election should be held before the end of April 1994. Substantial progress has been made. The constitutional process is, of course, a matter for and between the various parties in South Africa. That is all that I can say about that aspect of the matter.

Mr. John Carlisle: While my hon. Friend is right to offer the South African Government support for their move towards multiracial democracy, may I ask him to urge on them some caution with regard to the pace of reform? Does he agree that until all parties—including the Inkatha Freedom party and, despite current circumstances, members of the Conservative party—are involved in the decision-making process and the discussions, any move towards an early general election would be fatal for South Africa?

Mr. Lennox-Boyd: As I have already indicated, the negotiating council has tentatively agreed arrangements for setting a date for a general election in South Africa. Clearly it is for the negotiating council to proceed at such pace as it collectively judges would be wise in all the circumstances facing that country.

Dr. John Cunningham: Was not Nelson Mandela's persistence in calling for peace and reconciliation quite remarkable, and should it not be applauded, especially in the light of the assassination of his colleague Chris Hani and the known assassination threats faced daily by other leading members of the African National Congress? Would it not be beneficial to all parties in South Africa to move quickly to the formation of a transitional executive council, thus allowing all-party supervision of the defence and police forces in South Africa? Would not that, in turn, help to batten down the violence—if not end it, at least in the beginning contain it—and thereby hasten the achievement of non-racial democracy?

Mr. Lennox-Boyd: I am happy to endorse the hon. Gentleman's comments about Mr. Nelson Mandela, whose call for calm and measured reactions in the light of what must be dreadful provocation for so many people in South Africa is greatly to be applauded. The security situation in South Africa is primarily the responsibility of the South African Government, but it behoves all other people of influence to seek to restrain emotions which must be running high. As to the transitional executive council, I agree that its establishment will be beneficial. It will also enable the lifting of all sanctions to take place, as recommended by the ANC.

EC Foreign Policy

Mr. Knox: To ask the Secretary of State for Foreign and Commonwealth Affairs when he next proposes to have discussions with his European Community partners concerning the development of common European Community foreign policies.

Mr. Hurd: I meet our European Community partners regularly to discuss the strengthening of intergovernmental co-operation on foreign policy.

Mr. Knox: Does my right hon. Friend agree that this country can exert much more influence in the world when we work in unison with our European Community partners than when we operate on our own? Does he further agree that the Maastricht treaty will greatly facilitate that process and enable this country to exert more influence in the world?

Mr. Hurd: On a good many subjects, what my hon. Friend says is true. The principle on which we operate today, and which will be strengthened in the Maastricht treaty, is that where we can reach common positions we can take joint action. Where we cannot, or where specific national interests are to be pursued, individual member states must be free to do that.

Mr. Ernie Ross: Before the Foreign Secretary meets his European partners, will he take time to study the important report in Al Wasat of an interview between President Hafiz Al-Assad of Syria and Patrick Seale? In that interview President Assad recognised publicly for the first time, so far as I can recall, that both Israelis and Palestinians have to live in Palestine, and that the Syrians are for full peace with full withdrawal. He also recognised the growing opinion in Israel for peace. Will the Foreign Secretary recommend to his European partners that they support the statements made by President Assad in that interview?

Mr. Hurd: We have throughout given strong support to the discussions under the peace process. That includes discussions between Israel and Syria, and, of course, Israel and the Palestinians.

Sir Jim Spicer: Does my right hon. Friend accept that while all our attention is naturally directed towards events in Yugoslavia, other wars and civil wars are raging in what was the Soviet Union? Will he give an assurance that there will always be time to discuss those dreadful events and killings, and in particular the awfulness of the war that is developing between Armenia and Azerbaijan?

Mr. Hurd: Yes, indeed. It is the Conference on Security and Co-operation in Europe rather than the European Community which is attempting to provide a political framework for an agreement between Armenia and Azerbaijan over Nagorno-Karabakh, and we strongly support that process.

Mr. Grocott: When the Foreign Secretary next meets his European counterparts, will he draw to their attention the important resolution of the European Parliament on 22 April, drawing attention to the tragic position in Angola where, because of the colonial legacy, Europe has a special responsibility? In particular, will he draw attention to the way in which the will of the international community is constantly being flouted by the UNITA

forces? Will he take note of the contents of that resolution, which draws attention to the crucial importance of isolating the forces of UNITA from support from outside, particularly from South Africa and Zaire, and of seeing that the United States recognises and supports the Angolan Government, who represent the democratic will of the Angolan people?

Mr. Hurd: I am not sure about what the hon. Gentleman says about the colonial legacy—that was some time ago—but I believe that UNITA and Savimbi have lost, and deserved to lose, a good deal of international sympathy for failing to accept the results of the recent election in Angola. There is no alternative to discussion between the MPLA Government and UNITA, and it should be the task of all, particularly those who gave strong support to UNITA, to make sure that those discussions take place and succeed.

Sweden

Mr. Spring: To ask the Secretary of State for Foreign and Commonwealth Affairs when he last met the Swedish Foreign Minister to discuss Sweden's future relationship with the EC.

Mr. Hurd: I met Mrs. Af Uglass on 26 April in Stockholm and the Prime Minister, Mr. Bildt, the following day. I confirmed our strong support for a successful conclusion to Sweden's negotiations now going on to join the Community.

Mr. Spring: Can my right hon. Friend confirm that it is very much in Britain's interest that the membership of the European Community is enlarged and open to countries that are suitable for membership? Does he agree that the accession of Sweden, a country with which we have many links, will strengthen the EC's economic base and open up further opportunities to Britain in an expanding single market'?

Mr. Hurd: Yes, indeed. We look forward warmly to the day when Sweden joins the Community. We want the negotiations with the four applicants—Sweden, Finland, Austria and Norway—to press ahead as soon as possible so that, preferably, they go through all the processes and become full members by 1995.

Mr. Spearing: Does the Foreign Secretary agree that before any question of accession by Sweden to the EC, there is the matter of the European Economic Area, and a 550-page treaty, which is now under discussion? Since the Swiss have decided not to go ahead on that for the time being, can the Foreign Secretary tell us about the position of Sweden? Is it not a fact that accession to this treaty would mean considerable economic, commercial and legal obligations for Sweden? Have they been fully understood in Sweden, and would it have to have a referendum before acceding?

Mr. Hurd: The arrangements that have been made between the European Free Trade Area countries since the result of the Swiss referendum on the EEA are freely entered into by Sweden and fully understood by it. So the process of EEA is going forward and, at the same time, negotiations are making progress between Sweden and the European Community on its full accession.

Mr. Fabricant: Does my right hon. Friend agree with me that the rapid accession of Sweden and the other EFTA countries to the EC would result in a far more pragmatic and financially advantageous view of the expenditure within the EC?

Mr. Hurd: I think that they would all be net contributors, if that is what my hon. Friend is hinting at. There are wider and more political reasons why we in this country—and, I believe, most of the Community now —would warmly welcome the arrival as full members of the Community of those four countries. They are all well qualified and they would all, as far as we are concerned, be warmly welcomed.

United Nations Peace Operations

Mr. Win Griffiths: To ask the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement about the role of the United Nations Organisation as a peacekeeper.

Mr. Hurd: Article 1.1 of the charter of the United Nations states that the purpose of the United Nations is
to maintain international peace and security and to that end to take effective collective measures for the prevention and removal of threats to the peace.
We fully support the United Nations and the Secretary-General in these endeavours.

Mr. Griffiths: Will the Secretary of State admit that so far, unfortunately, the record of the United Nations has in no way lived up to what is contained in the charter? Will he accept that, while we are now seeing some improvement in the role of the United Nations, we need the following: first, a very rigorous regime of arms control to try to end the possibilities of the sort of wars that we are seeing all over the world; secondly, a permanent structure to react quickly to events such as those occurring in Yugoslavia, where, because everybody was at sixes and sevens, we have seen a tragedy unfolding before our eyes and have been virtually powerless to do very much that is effective about it?

Mr. Hurd: We are all in favour, and have taken initiatives in making, more transparent and open the criteria for the sale of arms, particularly among the permanent five. However, I ask the hon. Gentleman to live in the real world in which arms, particularly small arms, are plentiful and cheap in almost every country.
We are now seeing disorder within countries. It is not realistic to suppose that, even if the whole international community were united, for example, on what should be the future of Nagorno-Karabakh or the regime in Angola or Somalia, simply by forming a view from outside we will be able to impose solutions on the internal affairs of those countries. We can be more willing to try, not by putting in troops but by making diplomatic efforts to show people ways in which they can live together. However, I ask the hon. Gentleman not to arouse too many hopes in that respect.
At the beginning of 1992 there were 10,000 United Nations peacekeeping troops; at the beginning of 1993 there were 60,000; and when the planned deployments in Mozambique and Somalia happen there will be 100,000 in 12 separate operations. That is the measure of the growth of this problem and of the efforts of the United Nations to deal with it.

Sir Michael Marshall: Does my right hon. Friend agree that one of the most important ways of ensuring the peacekeeping process of the United Nations, particularly after a period of civil war, is through the organisation of free and fair elections? In that context, will my right hon. Friend take the opportunity to send good wishes to all those who will be involved in the process in Cambodia, including hon. Members and local government officials who, with other international representatives, will be leaving for Cambodia next week?

Mr. Hurd: My hon. Friend is quite right. Cambodia is one example where the United Nations has, for the moment, brought most of the fighting to an end and set up a framework in which there can, and should be, relatively free elections later this month. The situation is fragile, however, and my hon. Friend is right that all those concerned need our help and good wishes.

Rev. Martin Smyth: I welcome the Secretary of State's comment that the situation in Cambodia is fragile. Can he enlighten us as to how far the peacekeeping efforts of United Nations are impeded by the lack of finance from one of its largest participants? Does he accept that in Yugoslavia, where our troops are now changing over, humanitarian efforts were being hindered by those who were seeking to use the convoys bringing in aid for the purpose of supplying munitions? It would be worse if the United Nations were arming the participants there.

Mr. Hurd: It is true that one of the handicaps that the Secretary-General has suffered and draws attention to in his "Agenda for Peace" is financial uncertainty. Unfortunately, both former super-powers have in the past contributed to that uncertainty. I hope that both are removing that uncertainty. That is certainly the intention of President Clinton, but I am not encouraged by the Russian veto in the Security Council yesterday on financing peacekeeping. I agree with the hon. Gentleman's second point: we want to continue the humanitarian effort while it is needed.

Russia

Mr. Peter Ainsworth: To ask the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the effect on United Kingdom policy of the result of the recent referendum in Russia.

Mr. Douglas Hogg: We have warmly welcomed the outcome of last month's referendum in Russia. Our policy remains one of firm support for the continuation of economic and democratic reforms. This policy has now been endorsed by the Russian electorate.

Mr. Ainsworth: Does my right hon. and learned Friend agree that the sheer scale of the support shown by the Russian people for Boris Yeltsin and the programme of reforms gives a tremendous boost to international confidence in the long-term future of Russia? Does he also agree that in the near term substantial aid will be necessary to help the difficult process of economic transformation? Will he therefore comment on the quantity and quality of Britain's aid to Russia?

Mr. Hogg: My hon. Friend is right. He will know that last month my right hon. Friend the Foreign Secretary announced a doubling of United Kingdom direct bilateral


grant aid, together with a doubling of Export Credits Guarantee Department cover. Our total commitment to Russia is of the order of $1.7 billion. Referring to the quality of the aid, the United Kingdom's know-how fund is second to none as a mechanism for the delivery of technical know-how.

Mr. Cryer: If the Minister welcomes a referendum in Russia to clarify the position, why does he not take the same view of a referendum in the United Kingdom on the Maastricht treaty? It would clarify the position, and involve the people of the United Kingdom in determining whether to go ahead with this wretched treaty or reject it. If the people of Russia can have a democratic vote, why not the people of the United Kingdom?

Mr. Hogg: I have always known that the hon. Gentleman has a personality difficulty when it comes to judging things in relation to other things. He obviously equates the congress in Russia, which was elected under the Gorbachev regime, with this place. I do not, and I am sorry that he does.

BBC World Service

Mr. Bates: To ask the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the BBC World Service.

Mr. Lennox-Boyd: The World Service is an institution of great influence and prestige throughout the world. The substantial real increase in resources that we have provided, and are providing again this financial year, has enabled it to improve audibility, expand output and enhance programme quality.

Mr. Bates: I am grateful to my hon. Friend for that answer, and for reaffirming the Government's priority in maintaining the strength and position of the BBC World Service as the leading international broadcaster. Does my hon. Friend agree that in times of international conflict and uncertainty the need for an independent and unbiased news service around the world is greater than ever? Does he further agree that this can sometimes be best achieved by placing special emphasis on developing new language services so that the programmes broadcast become more widely accessible to the people whom they seek to serve?

Mr. Lennox-Boyd: I am happy to agree with my hon. Friend about the leading role that the World Service plays in the world of international broadcasting and its tremendous achievements. It is due to Foreign and Commonwealth Office recognition of those achievements, which have been followed by substantial assistance and funding that the World Service has been able to do so well

in recent years. In the past three year funding period, for example, broadcasts were increased by more than 10 per cent. and two new languages in areas of tension—Ukrainian and Albanian—were introduced.

Mr. George Robertson: Is the Minister aware that his views on the World Service, and those of the hon. Member for Langbaurgh (Mr. Bates), are shared throughout the House? The service is held in the highest esteem throughout the globe, not just in terms of the quality of its broadcasting but in terms of its reliability. It is widely regarded as the most reliable broadcasting service on the planet. Does the Minister recognise that there is genuine concern about the future funding of the World Service, given that it has been warned that it may well face substantial cuts in the Treasury spending blitz that is ahead of us? If it were to share in those cuts and its service were cut back, that would be not just a disgrace but hugely counterproductive to Britain's national interest.

Mr. Lennox-Boyd: I am fully aware of the widespread acclaim for the World Service in all parts of the House and I emphasise that the funding increase for the World Service from the Foreign Office budget over the past 10 years or so has been 40 per cent. in real terms. This year, the increase has been £10 million, which is way above the rate of inflation. What has happened—this is what the hon. Gentleman is referring to—is that the Foreign Office has been in touch with the World Service and said that, depending on the outcome of the public expenditure survey, we shall have to have discussions and if the Foreign Office is unable to meet the aspirations of the World Service, its funding will be put on the same footing as the rest of the Foreign Office budget when it comes to reviewing expenditure.

Sir Peter Tapsell: Does my right hon. Friend recall that, on a previous occasion when the Treasury required economies to be made in the foreign service budget, one of the economies made was to close down Spanish broadcasts to Latin America a few weeks before the Argentines invaded the Falkland Islands? Will he make absolutely certain that this immensely valuable institution, which does more for British influence and prestige throughout the world than probably any other activity of the Foreign Office, is protected from the next round of economy cuts?

Mr. Lennox-Boyd: I am grateful to receive the message of my hon. Friend in the spirit of support for the World Service. I do not believe that there are any cuts in prospect in terms of languages from the World Service. My hon. Friend has referred to an earlier occasion when there were threats; it is since then that the World Service has expanded in such a tremendous way.

Swan Hunter

Mr. Robin Cook: by private notice): To ask the President of the Board of Trade and Secretary of State for Trade and Industry if he will make a statement on what help he will offer Tyneside in the wake of the loss of the naval contract by Swan Hunter.

The Minister for Industry (Mr. Tim Sainsbury): The Government deeply regret that Swan Hunter has been unable to secure orders, including that for the new helicopter carrier for the Ministry of Defence. We are well aware of the potential loss of jobs both at the yard and among suppliers. The company will need to take decisions in the light of the failure to win orders and these decisions are likely to involve early job losses.
In the event of substantial job losses, the Government are considering a number of measures to help the area. We would intend to designate a new enterprise zone in the area and will urgently examine possible sites. This would be subject to European Commission agreement. English Estates would implement an important £2.5 million industrial development at Walker Riverside in conjunction with the city council and Tyne and Wear development corporation. The Tyneside training and enterprise council and employment service locally would offer an enhanced range of labour market help to those affected by the closures.
In addition, I can confirm now, ahead of the results of the assisted area map review, that both Newcastle and south Tyneside travel-to-work areas will retain their development area status, subject to agreement with the European Commission. Availability of regional selective assistance will be important in attracting new investment and new jobs. We are putting into immediate effect the Tyneside TEC plan for dealing with the closure of Westoe colliery, which is designed to help the whole area and not just those leaving the colliery. A further £2 million will be available to Tyne and Wear development corporation from the additional £20 million recently made available for coal regeneration measures for increased provision of new industrial sites in the area.
The area already benefits from support from many regional and urban schemes. The Government will be examining urgently how priorities can be focused within these schemes to help the area. I have asked my Department's regional director in the north-east, with colleagues from the Departments of the Environment and Employment, to co-ordinate all those concerned locally with regional regeneration to advise on how they can target resources most effectively to have an early impact in attracting new employment.
We do not in any way underestimate the importance that shipbuilding and Swan Hunter in particular have had for Tyneside. I hope that all concerned will co-operate to build on the measures that I have announced today.

Mr. Cook: Will the Minister confirm that last November he was warned by the constituency Members that Swan Hunter would be at risk of closure if it lost the naval contract? Are we to understand from the measures that he has just announced that the Government have not a single proposal to try to keep open the last remaining shipbuilding yard on Tyneside? Does he appreciate that, if they intend to do anything to save the yard, the situation

is now urgent, and that even as we discuss the matter the directors of the company are meeting the bankers? Surely the Government can announce something that they will do to continue shipbuilding at this yard, a yard which has already secured two export orders which could be lost if it were to close?
Does not the crisis at Swan Hunter provide a clear example of why we must plan ahead for conversion of defence industries that are losing defence orders?
Will the right hon. Gentleman confirm that Swan Hunter cannot get help from the European intervention fund to diversify because the Government agreed at the time of privatisation that British warship yards would be excluded? Will he return to Brussels and get that changed after today?
Will the right hon. Gentleman confirm that every part of the yard we are discussing is within the boundary of an urban development corporation which is appointed by the Government and accountable to the Government? What extra resources will it receive to cope with any extra need?
In the light of the right hon. Gentleman's statement about enterprise zones, will he give us an undertaking that, if Swan Hunter falls, the Government's own urban development corporation will use its planning powers to stop those high-tech facilities in the yard being demolished to make way for service industries, for warehousing or for supermarkets? Will it then try to find another operator to bring work to one of the most modern shipyards in Europe, with some of the most skilled people in Europe?
Already in the shipbuilding yards on both banks of the Tyne one in three men is out of work. If Swan Hunter closes, one in two could be on the dole. It is not just Tyneside, but the nation, that will have its eyes on the Government to see whether they can rise to the gravity of the crisis and match it now with help on the same scale as the blow they have just delivered to the local community.

Mr. Sainsbury: The hon. Member for Livingston (Mr. Cook) asked a number of questions. Underlying many of those questions appeared to be an attitude that belittled the achievements of enterprise zones and of urban development corportions. I wonder whether the hon. Gentleman is aware that the Tyne and Wear urban development corporation has already created 10,000 jobs. Is he not aware of the success of other enterprise zones in job creation? Is he suggesting that Tyneside should spurn those offers of help? That seemed to be underlying what he said.
The second thing that seemed to underlie the hon. Gentleman's questions was the suggestion that the yard should stay open regardless of the market for its products. If that is his attitude, I fear he must be the only person in the House who is not aware of the excess capacity in shipbuilding and, in particular, in warship building. I wonder why he does not recognise the advantage to that area of a transition from excessive dependence upon the old industries of coal, shipbuilding and steel to a more diversified economy, with vehicles, pharmaceuticals and electronics providing employment that will last and provide opportunities in the future.

Mr. Neville Trotter: My right hon. Friend must be well aware that the announcement that Swans has lost by a very large margin is a cruel blow for Tyneside. We welcome the steps taken today, but it is absolutely essential


that the local initiative that will come from Tyneside, the local effort, be matched on a sustained basis by national Government. [Interruption.]
May we have a promise that every Government—[Interruption.]

Madam Speaker: Order. Hon. Members must desist.

Mr. Trotter: May we have a commitment that every Government Department and agency will have its resources harnessed to this task?
Will my right hon. Friend pay an early visit to Tyneside to hear of the problem for himself? Does he agree that we have on Tyneside a very valuable asset in the labour force at Swan Hunter, who are highly trained, very skilled, hard working and flexible? Is not that an attraction for new industry?

Mr. Sainsbury: I am happy to confirm what my hon. Friend said about the skill of the work force and, even more importantly, about the commitment of the people of Tyneside to build on the opportunities that they are given through the measures that I have announced and through the programmes that are already in place there. They have the opportunity to build a more diversified and prosperous industrial future for a region with a very great past in industries that, sadly, are now fading.
I am also happy to confirm to my hon. Friend that I shall make early arrangements to visit the region this month.

Mr. A. J. Beith: Does not the Minister realise that all the measures, many of which we have already, are not enough even to replace the mining jobs that we are losing in the north-east, let alone to replace the jobs of all the skilled shipyard workers who will be put out of work as a result of a devastating decision for Tyneside? Does not the Minister also realise that the most useful thing that he could do would be to tell the Secretary of State for Defence to bring forward orders for type 23 frigates now so that there would be some shipbuilding work for the yard?
As a Minister whose Department is responsible for monopoly policy, will the right hon. Gentleman investigate and ascertain whether the order that was placed was in any way subsidised by the profits from the Trident contract? If that were so, it would mean that a monopoly supplier was buying its way into another monopoly.

Mr. Sainsbury: I am assured that there is no question of underbidding. The price tendered by the successful bidder was broadly in line with the expectations of the Ministry of Defence. I hope that the right hon. Gentleman recognises that, if the order had gone the other way, it would have been very bad news for two other areas of the United Kingdom.
I find it rather surprising that the right hon. Gentleman, who is a member of a party that has on a number of occasions and in a number of documents called for more substantial and earlier reductions in defence expenditure, now seems to be calling on the Ministry of Defence to order ships for which it has no immediate requirement.

Mr. Peter Atkinson: I welcome the package of measures that my right hon. Friend has announced today, although I am bound to say that the House and my

constituents who work in the Swan Hunter yard would have preferred to celebrate today the placing of the order for ships with that yard. We await fuller details of the tender so that we can be satisfied that like was compared with like in awarding the contract.
Will my right hon. Friend join me in congratulating the work force and the management of Swan Hunter on their valiant efforts in the past months? They have done their utmost to secure the order—sadly, only to fall at the last fence.

Mr. Sainsbury: I am happy to join my hon. Friend in that and to recognise the skills and commitment of the work force. We all wish to see those skills and that work force find job opportunities, if not in that yard then elsewhere, and we wish them to build on what I have announced and on the schemes already in place.
The tender, of course, is a matter primarily for my right hon. and learned Friend the Secretary of State for Defence and my hon. Friend the Minister of State for Defence Procurement. I am assured that the tender was awarded on a like-for-like basis and that it was genuinely won with a substantial price difference by Vickers Shipbuilding and Engineering Ltd. and its partner Kvaerner.

Mr. Stephen Byers: Tyneside does not want ministerial day-trippers; it wants positive action from the Government. The sense of despair and disappointment felt yesterday on Tyneside as a result of the announcement will turn today to anger and a sense of betrayal as a result of the Minister's complacent statement. The Government stand condemned for doing nothing to help the thousands of workers who depend on Swan Hunter.
Is the Minister aware that there is a widely held view that the announcement to award the hull to the Clyde, which would mean thousands of Tyneside jobs being sacrificed, was rushed forward to yesterday so that the Chancellor of the Exchequer could take some good news to the Scottish Tory party conference which starts today in Edinburgh? Will the Government, even at this late stage, take positive steps to preserve and protect shipbuilding at Swan Hunter, or will they simply do nothing and stand to one side to witness the end of shipbuilding on the Tyne?

Mr. Sainsbury: I hope that, on reflection, the hon. Gentleman will realise that his suggestion is unworthy of him. The Labour Front Bench has been pressing for the decision on this order to be brought forward.

Mr. Michael Jopling: Does my right hon. Friend understand that all those with roots in the north of England warmly support the measures that he has announced today and those measures that the Government have already announced and implemented to help that part of the country? Does he also understand that, while there is quiet satisfaction and pleasure in and around Barrow, the order which has been placed on the basis of technical excellence and value for money will help that part of Cumbria where many of my constituents work? There are massive and continuing problems in Barrow as a result of the end of the cold war and the collapse of communism and the rundown in submarine building. My right hon. Friend will need to pay attention to the continuing problems in Barrow in the months ahead.

Mr. Sainsbury: I thank my right hon. Friend for his welcome—and, indeed, that of other hon. Members—for


the measures that I have announced. They will bring further practical help and job creation opportunities to the region.
My right hon. Friend is right about what he said about Barrow. I am well aware of the difficulties there, both by reason of the peripherality of the area and the rundown of jobs in the Trident building programme. I know how welcome yesterday's announcement will be in Barrow and, indeed, on the Clyde.

Mr. Nicholas Brown: The Minister has just lectured the House on the recognition of achievement. Perhaps he will tell us where, in his announcement today, there is a recognition of the achievements of the directors and work force of Swan Hunter shipyard since privatisation in 1986. He supported that privatisation. How have the people of Tyneside been rewarded for all their work?
Many of the things that my constituents would like me to say to the Minister would not be allowed in the House, so I simply ask him a question that the whole of Tyneside wants to be asked: is it the Government's intention that Swan Hunter should remain in existence as a shipyard? If so, what orders will go into that yard? Orders will need to be committed by the end of the week or the yard will go into receivership.

Mr. Sainsbury: I hope that there is no hon. Member who does not recognise the difficulties, the regrets and, indeed, the sorrow and bitterness that may be felt because of the long history of shipbuilding on the Tyne, especially by Swan Hunter. We owe it to the work force and management of Swan Hunter to be practical and realistic. There is excess capacity in warship building. We all know the reasons why there is a cut in defence orders not simply in the United Kingdom but worldwide. We would not be helping that management or work force if we were to suggest that orders could be conjured out of nowhere. The measures that I have announced today will provide practical help to an area which has suffered a severe blow.

Mr. James Hill: I am sure that my right hon. Friend will agree that the House has heard many sad stories about yards that did not get defence orders. There was always a three or four-corner argument on who should get the latest frigate order, and so on. My firm of Vosper Thornycroft, in Southampton, which is privatised, has made great efforts. The opportunities that my right hon. Friend is showing today to this area could be something for the future because Vosper Thornycroft, after going worldwide to get orders and doing everything that it could to cut back its work force and ensure that it had a substantial order book, now valued at about £700 million, could be an example to Swan Hunter. I am sure that, with my right hon. Friend's help, this will not be a disaster story but something for the future.

Mr. Sainsbury: I certainly join my hon. Friend in congratulating Vosper's shipyard in his area on its success in building up a substantial export order book. It is another privatised yard that is expanding and taking on staff. As my hon. Friend recalled, it is inevitable that, when there are orders to be placed, the Ministry of Defence, on behalf of the taxpayer, should seek value for money. Seeking value for money inevitably means on occasion that there are losers of orders as well as winners. That is the inevitable result. It is obviously a matter of great regret

for those who lose, but it is not realistic to suggest that one should simply place twice as many orders so that there are no losers.

Mr. David Clelland: Is the Minister aware that, far from the impression that he gave of an outdated industry, Swan Hunter is one of the most modern facilities in the world? Is he further aware that, during the term of office of the Government, companies such as Plessey and Marconi—companies at the forefront of technology—have also closed facilities at Tyneside? Having destroyed our mining industry, now destroyed our shipbuilding industry, decimated our manufacturing industry and undermined our local democracy, can he explain to the people of Tyneside, particularly in Tynemouth, why any of them should ever contemplate voting Tory again?

Mr. Sainsbury: The hon. Gentleman would do his constituents and British industry a better service if he recognised its achievements, as my hon. Friend the Member for Southampton, Test (Mr. Hill) did, in winning record export orders, record manufacturing output and unsurpassed increases in manufacturing productivity.

Mr. Christopher Gill: In view of the strategic implications of losing a shipyard, will my hon. Friend discuss with the Secretary of State for Defence what scope there might be within the Royal Navy for ordering ships of a lesser specification? I am thinking particularly of those ships which are badly needed to replace our amphibious warfare ships, which are essentially ships which transport rather than fight. It would be possible to design ships which would serve their purpose with the lower specification and would serve the purpose of creating orders which are badly needed in British shipyards.

Mr. Sainsbury: I know that my right hon. and learned Friend the Secretary of State for Defence and my hon. Friend the Minister of State for Defence Procurement will both have noted what my hon. Friend said. I refer him to what my hon. Friend the Member for Thanet, South (Mr. Aitken) said last week, but I can also confirm that the order that has been placed for the helicopter carrier is by no means for a ship that is gold-plated. It will be a practical vessel which will meet the requirements of the Navy for the task that it has been given.

Mr. Doug Henderson: Does the Minister understand that the great sense of anger among workers in the shipyard community and the whole of Newcastle is born out of a sense of betrayal? The Government have told workers that they believe in an industrial policy, yet it is clear that a decision has been made on defence procurement which does no more than set one industrial area against another, without regard to the regeneration of two industrial communities in the north.
Is it not time that there was much closer liaison between the Ministry of Defence and the Department of Trade and Industry? Is it not also time that a more long-term approach was taken to defence procurement? Does the Minister accept that an urban development corporation is wholly inadequate to deal with a situation in which 3,000 direct jobs and 6,000 or 7,000 indirect jobs are at risk? Does he not believe, as his boss used to believe, in the need for a strategic economic development body on Tyneside?

Mr. Sainsbury: I can assure the hon. Gentleman that there is the closest possible co-operation between my Department and the Ministry of Defence. The wider issues to which he referred were fully taken into account. But surely he can recognise that we were ordering not two helicopter carriers but one, and that one yard or the other, sadly, had to be the loser.
As I said earlier, I am sure that we can all appreciate the feelings of those on the losing side, but we must be realistic. That is why I have announced a package of measures that can be taken and are being taken by the Government which will genuinely help to attract employment and provide better training and relocation opportunities to the work force of Swan Hunter.

Mr. Roger Knapman: Would the order have been available to either yard if we had initiated the cuts in the defence budget advocated by either of the Opposition parties?

Mr. Sainsbury: My hon. Friend makes, clearly and simply, an effective point. If the Opposition parties' proposals on defence expenditure had been followed, there would have been no order for either yard.

Mr. John Evans: Does the Minister accept that his announcement today, which means the virtual closure of Swan Hunter, is a sad occasion for someone like me who served his apprenticeship as a marine fitter in that shipyard? Is he aware that, when I entered the House in March 1974 after handing in my notice at the Hawthorn Leslie shipyard, there were six yards on Tyneside building ships—the Walker naval yard, the Swan Neptune yard, Hawthorn Leslie, Clelands of Wallsend and Redheads of South Shields, as well as Swans. All the yards that I have named have closed during the past few years. The Tory Government have stood back and done nothing, while thousands of skilled shipyard workers have been thrown on the dole queue.
Is it not time that the Minister accepted that it is in Britain's national interest to retain shipbuilding on Tyneside where some of the finest ships that have ever sailed the seven seas have been built? Is not it incumbent upon him and his Government to provide work and orders to maintain shipbuilding on Tyneside?

Mr. Sainsbury: We all appreciate that the failure to win the order was a bitter blow not just to persons such as the hon. Gentlemen who are involved with that shipbuilding area but to those working at the yard and those who have worked at the yard and their families. But it is surely impractical and unrealistic to suggest that we should conjure up orders for warships which the Ministry of Defence does not want in order to keep warship building going when there is excess capacity for warship building.
Is not the hon. Gentleman aware of the scale of the reductions in shipbuilding, both merchant and warship, not just in Britain but throughout Europe and the rest of the world? There is no point in trying to prop up a yard to build ships for which there are no orders. There is point in doing what the Government have announced today, which is to provide better opportunities for attracting employment and training for the work force.

Mr. Keith Mans: Does my right hon. Friend agree that it is sad for Tynesiders that the decision has gone against them, but the fact remains that had the decision gone the other way the job implications on

Clydeside, and particularly in Barrow, were likely to be even worse because of the geographical nature of that area? Does he further agree that the way in which the tender was set out and won by VSEL clearly demonstrates the good value for money that the taxpayer is getting from this method of providing warships for the Royal Navy?

Mr. Sainsbury: My hon. Friend makes an important point about value for money for our defence expenditure. I fear that he is right to draw attention to the fact that, if my hon. Friend the Minister of State for Defence Procurement had awarded the contract to Swan Hunter, I might have been hearing much the same comments that I have heard today but from a different group of Members. That brings us back to the fact that there is not a need for two ships, but two yards were bidding and one had to be a loser.

Mr. Ronnie Campbell: Is the Minister aware that in the past three or four months 5,000 jobs have gone in the mining industry, that after last night's decision on fishing thousands of fishing jobs will go, and that thousands upon thousands of jobs will be lost on the closure of Swan Hunter? When will the Minister realise that he is not setting up enterprises in the north-east but closing them down? Where shall we find enterprises that will put 10,000 people back to work? When will the Minister get off his backside and get something done in the north-east?

Mr. Sainsbury: I hope that the hon. Gentleman will pay tribute to the excellent work that has been done by all those—

Mr. Campbell: What about the miners, the fishermen and the shipyard workers?

Mr. Sainsbury: If the hon. Gentleman will pause for a moment, I was saying that I hope that he will recognise the excellent work that has been done by all those people on Tyneside in the local authorities, by business men in the chamber of commerce, and by the training and enterprise council. In the urban development corporation, 10,000 jobs have been created, jobs have been created in the enterprise agencies and we have achieved success in the measures that we have taken in Sunderland. Let us look forward and try to build on the industries of the future, not try to prop up the past.

Mr. Bill Olner: I have never heard a Minister so complacent in all my time in the House. I am sure that the House will regret the fact that a great shipbuilding industry is going, not temporarily but for good, and when there is a dire need for the British merchant fleet to be modernised and replaced. When we lose the capacity for building ships at Swan Hunter on Tyneside, any orders will go to foreign countries, to our competitors.
The Minister's talk about enterprise zones is slightly flawed and hollow. Swan Hunter has the ability to make good quality ships that our merchant fleet could use, and we should be using it.

Mr. Sainsbury: Again, I have to say that, if we are to provide practical help, we must recognise that there is a great excess capacity of shipbuilding in the world, not just warship building but merchant ship building. To be realistic, it was most unlikely that Swan Hunter would be able to win merchant ship orders against the competition


that is around, even were there such orders waiting to be placed. I suspect that the hon. Gentleman knows that there are no such orders. That is why I emphasise again that the measures that we have announced are devoted to attracting new industries and to providing premises for those new industries, which will create employment in the vehicle, pharmaceutical and electronics industries, for which there is a promising future and where great success has already been achieved on Tyneside.

Scottish Water Services

4 pm

Mr. Andrew Welsh: On a point of order, Madam Speaker. May I draw to your attention Government press briefings and press reports of a major policy statement about the privatisation of Scottish water services that is being made in Edinburgh today? Will you repeat your view that Government policy statements should be made in this House, especially when they concern services that affect every family in Scotland and more that 6,000 jobs?

Madam Speaker: If a statement of the nature of which the hon. Gentleman speaks has been made, of course I deprecate it. I am always anxious that information should be made available to this House in the first instance. As the hon. Gentleman says, it seems at present to be speculation. He should really have the facts before he raises such a point of order with me.

Mr. Welsh: Further to that point of order, Madam Speaker. I have the press release here, which is headed.
Tories' Water U-turn—Sell-off Plan Dumped.
It quotes a speech by a Government—

Madam Speaker: Order. I am not arguing with the hon. Gentleman, but what he is holding up appears to be a press report, not a press release.

Voluntary Personal Security Cards

Mr. David Amess: I beg to move,
That leave be given to bring in a Bill to provide for the introduction of a system of voluntary personal security cards; and for connected purposes.
Every Member of Parliament already enjoys the protection of his own personal security card. I hope that that principle can be extended throughout the country. There is much talk at the moment in all quarters about the fact that the Government should listen to what people are saying. I have no doubt in my mind that the Government are doing that already, but I do not believe that it is either good or sensible government automatically to develop policy, regardless of whether or not there is a strong belief in what people are saying. After all, Governments are elected on the basis of legislative proposals and a set of deeply held beliefs. I hope that on this occasion the Government will listen carefully to what both I and other law-abiding citizens are saying on this issue. If the Government agree, I very much hope that they will support the scheme.
One of the planks of the party to which I have always belonged is free choice, but that has never meant the freedom to choose which law to obey and which law to break. Both I, and many other citizens of this country, are appalled by the general level of criminality. The laws that we make in this place must be obeyed, but at the moment it seems to me, and to many other people, that the civil liberties of law-abiding citizens are fast being eroded. Even now, over 90 per cent. of the population are law-abiding. The country is therefore crying out for action to halt the millions of crimes that are being committed, which are costing the country an enormous amount of money.
Nothing, and no one, forces a person to break the law. It is very much a matter of individual responsibility or, should I say, lack of responsibility. That is why I believe that people should be allowed voluntarily to obtain a personal security card.
The Bill accepts in essence the recommendation that the Home Affairs Select Committee made in July 1990, when such a voluntary scheme was recommended to the Home Office. I am well aware of the arguments that are advanced against a compulsory scheme and I understand entirely the outrage that there would be if a law was passed, for instance, to make it an offence not to carry such a card. However, many parts of our lives in modern society require us to prove identity, so what could be more attractive to citizens than for them to take full advantage of the technology that is now available and to obtain voluntarily a personal security card?
The card could be used, for instance, to satisfy shopkeepers about identity when cashing cheques, or by landlords when querying drinkers' ages. It could be used for banking purposes or for recording information about organ donor status. It could also be used as a voluntary identification document to facilitate travel within the European Community and could become a model for a Community-wide card.
I have no doubt that a voluntary personal security card would help to combat fraud, illegal immigration and terrorism. The police would not have the powers to

demand production of the card, and the concerns that have been expressed about oppressive demands on minorities would not, I believe, arise. Nevertheless, when people are stopped by enforcement authorities for various reasons, they might see the advantage of holding a card to prove their identity.
Proper safeguards would be necessary to ensure data privacy and the Data Protection Registrar, the many other agencies and the associated authorities would need to be involved in the process. Citizens would have the right to have independent access to data contained on their cards and to challenge its accuracy.
I have complete confidence that many companies throughout the United Kingdom have the skill and sufficient technological imagination to produce a machine-readable security card at a very reasonable cost and I am sure that people would not mind purchasing them for a small price. My goodness, the general public pay enough money through the public purse to try to control the level of criminality.
Like the Home Affairs Select Committee, I believe that personal security cards, which use modern technology to incorporate information about the holder, could be a positive enhancement of liberty. Nothing could be more invasive than the exposure of someone's private credit card transactions, yet it has never been suggested on civil liberty grounds that we should abolish credit cards as a result of the exposure of people's lending limits.
British citizens are already well used to carrying cards and to identifying themselves before cashing cheques or borrowing library books, let alone crossing national boundaries. One card—a smart card—which allowed all that to be done and which contained data on the holder's medical records in case of emergency and for banking purposes would be of enormous benefit.
I believe that now is precisely the time to react positively to the widespread and deeply felt concern among the general public about the level of criminality. The voluntary scheme that I am proposing has many benefits for the individual and for the state. I am not aware of any objection to the principles and laws behind registering someone's birth or death. Why, then, can we not allow the period between those two points to be clearly identified? I hope that the Bill will start the necessary process towards the implementation of a scheme that could be another weapon in the serious war against crime in which we all, as citizens, have a part to play.

Question put and agreed to.

Bill ordered to be brought in by Mr. David Amess, Mr. Jacques Arnold, Mr. David Ashby, Mr. Roy Beggs, Mr. James Hill, Lady Olga Maitland, Dame Jill Knight, Sir John Hunt, Dame Elaine Kellett-Bowman, Mrs. Angela Knight, Mr. Ralph Howell and Sir John Wheeler.

VOLUNTARY PERSONAL SECURITY CARDS

Mr. David Amess accordingly presented a Bill to provide for the introduction of a system of voluntary personal security cards; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 2 July, and to be printed. [Bill 196.]

Orders of the Day — Finance (No. 2) Bill

Considered in Committee [Progress, 11 May]

[MR. MICHAEL MORRIS in the Chair]

Clause 52

PERSONAL AND MARRIED COUPLE'S ALLOWANCES

Mr. Nicholas Brown: I beg to move amendment No. 48, in clause 52, page 30, line 34, leave out 'sections 257 and' and insert 'Section'.

The Chairman of Ways and Means (Mr. Michael Morris): With this, it will be convenient also to discuss the following amendments:

No. 49, in page 30, line 34, leave out 'personal and'.

No. 50, in page 30, line 35, leave out 'allowances' and insert 'allowance'.

No. 51, in page 30, line 35, leave out 'amounts' and insert 'amount'.

No. 12, in page 30, line 37, after '1993–94', insert
'in respect of the married couple's allowance only'.

No. 52, in page 30, line 38, after '1993–94', insert
'so far as relates to section 257A of that Act.'.

No. 13, in page 30, line 38, at end add
'in respect of the married couple's allowance only'.

Mr. Brown: The amendments tabled by the Labour party would have the same effect as those tabled by the Liberal Democrats—although I see that no Liberal Democrat is here to speak to those, so it would probably be for the convenience of the Committee if I spoke to their amendments as well as ours. Fortunately, the amendments have been grouped together.

Mr. Tim Smith: Where are they?

Mr. Brown: The hon. Member for Beaconsfield (Mr. Smith), who I understand will not be with us in the Standing Committee—that is a source of enormous regret to the Opposition—asks me to explain where the representative of the Liberal Democrats is. As the right hon. Member for Berwick-upon-Tweed (Mr. Beith) has just entered the Chamber, I can say, "There he is," or, "He is there, he is there," as the Prime Minister would point out in that inimitable style that he has made his own.
The other inimitable element of style that the Prime Minister has made his own is, of course, concealed tax increases, which we are discussing today. In case anybody has overlooked it—I am sure that no one in the Chamber has—I must explain that what is before the House is a massive increase, but a back-door increase, in direct taxation. [Interruption.] The Financial Secretary to the Treasury giggles at that idea. I do not know whether he giggles nervously or out of sheer physical exhaustion; after all, he has had to deal with the Maastricht legislation as well as with the Finance (No. 2) Bill.
I should be a great deal more sympathetic to the Government's concealed tax increases if some of them were being spent on procuring the landing platform helicopter vessel from Swan Hunter. I understand that the Treasury is taking the credit for the fact that the order has

gone to Barrow-in-Furness rather than to Swan Hunter. If that is an opening shot in the negotiations, it is not a worthy one.
The tax increases before us are of substantial significance. The changes that the Budget invites us to make in personal allowances are designed, as the hon. Member for Dover (Mr. Shaw) will be well aware, to bring in an extra £2.5 billion for the Exchequer in 1994–95 and an extra £2.7 billion in the following year. Those are substantial sums.
That Tory trick has been tried before. In 1981, the then Chancellor froze all the allowances and gained an extra £2 billion. What I think will anger the electorate—last week's election results show the extent of public anger with the Conservative party—is not just the breaking of pre-election pledges about tax increases but also the sneaky way in which the Chancellor has gone about the increases. It is clear that Treasury files have been scoured for tried and tested ways of raising taxes that at least the Chancellor hopes the taxpayers will not notice. Clearly, however, they have noticed.
Let us take the obvious example. Although an increase of a penny in the pound in income tax would have been more progressive than a I per cent. increase in employees' national insurance contributions, the Chancellor chose the latter. This is not because such a move provides more help for the poor—obviously it does not—but because the Chancellor clearly believes that it does not look so much like a tax increase.

Mr. Tim Smith: Will the hon. Gentleman give way?

Mr. Brown: When I finish this point, I shall of course give way to the hon. Gentleman, who is a firm favourite of mine and of other Labour Front-Bench Treasury spokespersons.
Exactly the same sort of thinking as that to which I have just referred applies to the extension of valued added tax to domestic fuel and charities. It is pretty clear that the electorate have seen through these devices and are even more angered at the attempted deceit than at the tax increases themselves. What the Treasury team has given us are the methods of Arthur Daley, used by those who clearly regard Alan B'Stard as a role model.
I give way to the hon. Member for Beaconsfield (Mr. Smith), without the obvious implication.

Mr. Smith: I am sure the hon. Gentleman knows that the principal reason for increasing national insurance contributions is that the national insurance fund is now in substantial deficit. Indeed, it will still be in substantial deficit after the increase. I imagine that the hon. Gentleman supports the contributory principle on which it is based. Contributions must be increased when outward payments are rising.

Mr. Brown: It would have been more helpful if the hon. Gentleman had reminded us which party had scrapped the Treasury's contribution to the national insurance fund. If his case is based on hypothecation, why, a few years ago, did not the Government think that that was a very strong argument? The Standing Committee will miss the hon. Gentleman, as he brings to the arguments a quality that one does not necessarily find in all his hon. Colleagues. In making that comment, I do not intend to cast aspersions.
I should like to move on to the real topic of this debate— not just tax rises, but sneaky tax rises. Taken together,


the Government's changes in allowances and the change to the lower rate band, which, in fairness, has also to be considered, will result in a net gain to the Exchequer of £2.7 billion by 1995–96. Of course this is significant. We should discuss the lower rate band as a reform, as a means of giving back to taxpayers more of their own money, alongside the freezing of the personal allowances, which is a means of taking from taxpayers more of their own money.
Let me state the brutal arithmetic. In 1995–96, the Chancellor will gain about £96 million from freezing all the personal tax thresholds, and another £1,170 million through further restriction of the married couple's allowance. On the last point, hon. Members will recall how thoroughly the Labour party was denounced during the 1987 general election campaign for proposing to do something similar. The present Prime Minister denounced our proposals, and then adopted them. To offset the substantial inflows to the Exchequer that I have just described, it is right to consider the cost of about £850 million to which it is said the lower rate band will give rise in the same financial year. That money goes back to the taxpayer.
However, the changes to mortgage tax relief gain an extra £870 million for the Exchequer. Here again, the Chancellor probably hopes that people will not notice or will not mind so much, as mortgage interest rates have come down following his spectacular policy of leaving the ERM and reducing interest rates. However, long-term interest rates are rising, and are certainly higher than short-term rates. We all know what that probably means for the future, although I am not sure that I agree with the Chancellor that letters to him urging rises in interest rates are a lead indicator.

Mr. David Shaw: As one of the more sensible members of his party, does not the hon. Gentleman think that it is sensible for the Government to raise revenue to reduce a deficit which has been caused by a recession, not just in the United Kingdom, but worldwide? As he has raised the issue of the long-term rate of interest, surely he recognises that, by reducing the deficit, we will secure a better future, with a reduced long-term rate of interest. Does he not feel, in the national interest, that raising additional revenue in that way is good?

Mr. Brown: The hon. Gentleman certainly knows how to launch a wounding attack. Being described as one of the more sensible members of the Opposition Front Bench by the hon. Gentleman is designed to do me enormous damage on Tyneside, or at least among those who follow the debates in Committee on the Finance Bill.
The hon. Gentleman has obviously been following my speeches, including my reply to the Second Reading debate and my earlier speech on economic affairs, when I drew attention to the deficit and to the dangers inherent in it. The deficit is a problem. It would be a problem for us in government, as it is for the Government, but let us not forget how it came about. It was the Government who said before the general election that it was safe to reduce taxes and who say that recovery is happening, but yet have had to reduce, rather than increase, their growth forecasts.
Above all, it was the Government who in 1988 said that it was right to cut the top rate of income tax. The Labour

party voted against that, after a huge fight about it during the passage of the legislation that year. I think that the hon. Gentleman served on the Standing Committee, so he will recall the events with some affection. It would be better if he showed sorrow and repentance, although those emotions and characteristics are not normally associated with him.
Moving to the Chancellor's tax hike, obviously he thinks that he can slip through this substantial tax increase —clearly that is what it is—without people noticing or objecting. He has allied to the changes on mortgage tax relief changes to car tax allowances, which will bring in an extra £370 million in 1995–96, and changes to the tax treatment of relocation expenses, which we will examine in detail in Committee, which will bring in an extra £206 million, not an insignificant amount.
When we add the gains from freezing all the tax thresholds and eroding personal allowances, and deduct the much smaller cost of the lower rate band, we arrive at a net gain to the Exchequer for the financial year 1995–96 of £2.7 billion. Expressed as a proportion of all revenues for the Government, that is an increase of 4 per cent. It is significant because of the way it is constructed. Particularly seriously for the Opposition, it is significant because it is also regressive.
The very poorest are not affected. One fifth of all adults do not pay income tax, even at the 20 per cent. rate, because they are too poor. They way to target help on the poorest is not through the tax system but through the social security system. However, I suspect that the Chancellor and the Chief Secretary were even less receptive to that point than usual when they came to construct this year's Budget. Of course, on past form it is not a point that one would expect the Secretary of State for Social Security to have raised or pressed with them.
The Institute for Fiscal Studies, in its green budget for this year, draws attention to the gains and losses from restricting allowances and from expanding the reduced rate band. For its calculation, it used a figure of £1,000 rather than the Chancellor's £500—the broad flow gives a similar distributional effect. The institute's work shows that the very poorest are not affected, because they are too poor to be affected by any change in the construction of the tax allowance system. The next poorest—those in the third, fourth and fifth deciles, who have below ordinary or medium means—are adversely affected by the change. People in the sixth, seventh, eighth and ninth gain slightly from the change, and the wealthiest 10 per cent. are also slightly adversely affected because they come into a higher rate band.
We are concerned, of course, about the regressive effect of the change—particularly the way in which it will impact upon those who are not the poorest in our society, but next to them. They are typically persons in work but earning £100 a week or less. The freezing of allowances and the expanding of the lower rate must cumulatively have a regressive effect.
Single people with incomes of £3,535 up to a level of £5,535 are £18 worse off because of the changes, but everyone with an income of less than £5,895 must be worse off with the lower rate band than they would have been with the indexation of personal allowances.
Because of this, the parliamentary Labour party has tabled an amendment whose intention is to restore allowances. By this means, we wish to help those in our society who are on poor wages. We object very strongly to


the dishonesty of the construction of the Government's tax policies. We also object very strongly to the use of the lower rate band and the freezing of allowances to make changes which are demonstrably regressive.

Mr. Tim Smith: It is a matter of considerable regret to me that I shall not be serving on the Finance Bill Standing Committee and shall not have the opportunity of hearing the entertaining words of the hon. Member for Newcastle upon Tyne, East (Mr. Brown).
It is worth recalling the background to any debate on the indexation of personal allowances, especially as the hon. Member for Birmingham, Perry Barr (Mr. Rooker) is present in the Chamber. Hon. Members will recall that in the 1970s there was no obligation on the Government of the day to index personal allowances. When inflation reached 25 per cent., in 1975, there was pressure, not only from the Opposition of the day but also from the hon. Member for Perry Barr and his colleague who is now the hon. Member for Preston (Mrs. Wise), to change the law.
This was successful, and that change has been one of the most important and radical changes to tax law in the last 20 years. It is now incumbent on the House, if it does not want to index, to make a positive decision in that sense. The change was more important in those days, the late 1970s, when inflation was running at an average of about 15 per cent. per annum, than it is today. None the less, it is important even today.
A decision not to index these allowances should not be taken lightly. I would be the first to recognise that, if one does not index allowances, one is increasing the tax burden on those people on the lowest incomes. That was precisely the concern of the hon. Member for Perry Barr when he pursued this issue so assiduously, and ultimately so successfully, in the late 1970s. I am very glad that at that time the Conservative Opposition supported him in that endeavour, because it was a very important change.

The Financial Secretary to the Treasury (Mr. Stephen Dorrell): I agree with what my hon. Friend is saying, and he is making an important point. I wonder whether he is aware of the statistical background against which this argument is taking place. Over the five years between 1974 and 1979, the Labour party cut the real value of the single person's allowance by 21 per cent. In the period since we have been in office, including this year's proposals, the single person's allowance has risen by 25 per cent. in real terms.

Mr. Smith: I am grateful to my hon. Friend for reminding the Committee of the background to the decision, but I was not surprised at what he had to say.
The concern of hon. Members at that time was not only that there had been substantial increases in tax rates in the Budget of March 1974—when Denis Healey had increased the standard rate of income tax from 30 per cent. to 33 per cent.—and in the following year's Budget of March 1975, when the standard rate was increased again from 33 per cent. to 35 per cent. In addition, we had 25 per cent. inflation and no indexation of tax allowances. As a result, not only was there a massive increase in the tax burden for every income tax payer, but his bore down particularly heavily on people on low incomes. That was the concern of the hon. Member for Perry Barr. By that time, much of the damage had been done, because changes were not made until the Finance Act 1977.

Mr. Jeff Rooker: It was 14 June 1977.

Mr. Smith: It was 14 June, 1977. The hon. Gentleman has that date etched on his memory—rather as I do 28 April 1977 when, partly as a consequence of the huge changes in taxation, I was elected to the House for the first time. I remember the miners of Ashfield showing me their pay slips and telling me of the massive increase in the tax burden they had suffered under Denis Healey, the most unpopular Chancellor ever in Britain. We will never again have such an unpopular Chancellor because of such a massive increase in the tax burden.

Mr. Rooker: Will the hon. Gentleman give us a forecast of when he thinks the tax burden will once again be reduced to the level that it was left by Denis Healey?

Mr. Smith: At that time, people were concerned about direct taxation. Funnily enough, and it is a rather strange thing, most people have a good idea how much tax they pay—for example, in local taxation. My post suggests that people have a pretty good idea of how much council tax they pay. It is a tax with a high profile, as it should be. So is income tax. People get a pay slip every week and they can see how much income tax and national insurance is being deducted. However, if the average person in a pub was asked how much tax he had just paid on a round of drinks, fortunately, he would probably have no idea.

Mr. Alan Milburn: Fortunately.

Mr. Smith: It is extremely fortunate, and it is true for all Governments.
There is no doubt that some ways of raising tax are less painful than others, simply because they have a lower profile. Some taxes have the advantage of being buoyant, some do not. There are many different considerations when one is deciding on the most sensible tax structure, but all those factors need to be taken into account.
At that time, people were concerned about direct taxation, and they are still concerned. They are concerned principally, but not exclusively, about tax rates, but they are also concerned about tax allowances and the point at which their income starts to be taxed. The minimum amount that one can earn before one has to pay tax is an important question, and we are considering it this afternoon. It is not a decision to be taken lightly to decline to increase the tax thresholds. One needs to give that serious consideration, and it is precisely what we are doing in the debate.
The hon. Member for Newcastle upon Tyne, East referred to the 1981 Budget. I am probably right in saying that it was the last occasion on which such a decision was taken. That may not be so, but it certainly involved a large increase in taxation. He referred to a figure of £2 billion, and I believe that was the figure by which taxes were increased in 1981.
Although the circumstances were not the same in 1981, they were similar in some ways. There is no doubt that the Budget in 1981 was extremely unpopular—of course it was; no one likes having their taxes increased, it is as simple as that—but it was also a very courageous Budget, which established the foundations for economic recovery throughout the 1980s, because it tackled the problem of the public sector borrowing requirement. The Chancellor,


Lord Howe—Sir Geoffrey Howe, as he then was—made a clear commitment to sound finances on the part of the Conservative Government.
We had to deal with the difficult problem of the PSBR, and my right hon. Friend the Chancellor has done the same this year. This, too, is not a popular Budget, and we do not have to look far to see why. If we look at page 6 of the Red Book, we find that taxes are to rise by nearly £500 million in the current financial year, by more than £6.5 billion next year and by more than £10 billion the year after. Of course such measures are never likely to be popular.

Mr. Nicholas Brown: It would help my understanding of these matters if the hon. Gentleman could explain why —if the Government were as committed as he said to sound finances in 1981—the situation has since deteriorated to such an extent that it is necessary to have tax rises to reaffirm the same commitment that was given then? What has happened over the last 10, 11 or 12 years? Why have matters deteriorated in such a way that we need to hear the same speech?

Mr. Smith: I do not want to leap about like a grasshopper in what is a carefully prepared and thought out discourse. I will come to why we now face such a large PSBR, to which the hon. Gentleman referred in his speech.
The decision not to index personal allowances must be seen in the broader context of the important need to raise revenue to tackle the PSBR. The point that I was making is that Sir Geoffrey Howe in his 1981 budget did exactly that. It was extremely unpopular at the time, but it established a basis for economic recovery throughout the 1980s. It will not be long before we think the same about the 1993 Budget.

Mr. David Shaw: My hon. Friend says that this is not a popular Budget. Will he consider that very carefully? It has been popular with overseas holders of sterling, who have seen that the pound is worth supporting and that the Government have been running the finances well; it has been popular with overseas purchasers of gilts; the Government's borrowing requirement has been well met by support from overseas purchasers; it has been popular with business men, who feel that it is the basis on which recovery can be built; it is clearly popular with overseas investors, who still intend, as far as one can see, to locate their businesses here; it is clearly popular with the people who can help us create jobs in this country. Perhaps my hon. Friend will consider that it is a popular Budget with all the people who count, but what we must do is explain it to the people better—

The Chairman: Order. The hon. Gentleman is not being popular with the Chair. We are supposed to be discussing personal and married couples' allowances.

Mr. Shaw: I understand your point, Mr. Morris, but if I can make the key point—

The Chairman: Order. No.

Mr. Smith: I have to say that I was taking a rather narrow view of popularity: I was referring to the voters in my constituency. I accept what my hon. Friend says—he makes an important point—because, in the long run the Budget did appeal to the people he is talking about. They

too recognise that the decision not to increase the personal allowances was not an easy decision to take. It was a difficult decision, but the right decision in the circumstances. In the long run, it will have very great benefits. There are two different contexts.

Mr. Clive Betts: The hon. Member is comparing the 1993 and 1981 Budgets, and he is saying that the latter laid the foundations for what he seems to think was a recovery in the 1980s, and that the former will do the same for the 1990s. But surely in 1981 it was unnecessary for the Government to freeze the uprating of personal allowances in line with inflation. Why then is it necessary in 1993, given that he has drawn the comparison between the two Budgets?

Mr. Smith: I think that I am right in saying that the Government did exactly that in 1981. The hon. Member for Newcastle upon Tyne, East (Mr. Brown) also confirmed that that was the case. That is why I was drawing a parallel with 1981. I was saying that on both occasions difficult decisions had to be made in order to provide a sound basis for economic recovery.
I want briefly to deal with a point raised by the hon. Member for Newcastle upon Tyne, East. He asked why the Government did not increase the standard rate of income tax, rather than, for example, increasing national insurance contributions. It is an important point that needs to be addressed. I suggested to him that it was because the national insurance fund is a separate fund. Some people tend to trivialise the matter and say that it is of no consequence, but I attach importance to this and to the contributory principle, for many reasons that it would be wrong to go into in the present debate. I accept what the hon. Member says about the Treasury supplement. I would like to see us get back to a national insurance fund which is properly funded.
What I wanted to say about the decision not to index the tax allowances was that it needed to be looked at in two contexts. The first is that of increasing taxes overall. That is what will happen. I have already quoted the figures to the Committee. It is one of a number of different measures, some of which could be described as more progressive than others. We could have some debate about which taxpayers will be hit hardest by this. I think that the figures that the hon. Member for Newcastle upon Tyne, East quoted earlier, from the Institute for Fiscal Studies, were prepared before the Budget. At least, it sounded like it to me, because he referred to an increase in the 20 per cent. band of £1,000 whereas, as I understand it, the 20 per cent. band will be increased by only £500.

Mr. Nicholas Brown: That is what I said.

Mr. Smith: Yes, the hon. Gentleman made that point, but I was suggesting that, as the figures from which he was quoting referred to £1,000, they must have been prepared before the Budget, or, if they were prepared after the Budget, they must have been prepared by someone who had not read the Budget properly.

Mr. Brown: rose—

Mr. Smith: Whichever it was, they were not very helpful figures, because they did not refer to what had actually happened.

Mr. Brown: The hon. Gentleman knows perfectly well that I said that I was quoting from the IFS's green budget,


which was prepared in advance of the Budget. It is a document with which he is perfectly familiar. The graph on the distributional effect was prepared on the basis of £1,000, and I acknowledged that the band had been expanded by only £500. But it does not affect the broad distributional effect, the fact that the poorest neither gain nor lose because they do not pay tax, the next poorest lose and the people who are slightly better off may gain a little, but not a lot.

Mr. Smith: rose—

Mr. Dorrell: My hon. Friend might like also to ruminate on the fact that, although the hon. Member for Newcastle upon Tyne, East quoted from an IFS report on what might happen on the basis of its green budget, he very noticeably did not quote from the IFS analysis of what will happen as a consequence of the Government's actual Budget. It has analysed the distributional effect of the Budget, and the evidence that it has produced shows almost precisely the same tax take all the way up the income scale. Decile by decile, the effect of the Budget is the same, according to the IFS.

Mr. Smith: I am very grateful to my hon. Friend for confirming what I was about to say, which was that the hon. Member for Newcastle upon Tyne, East had, first of all, quoted from a document prepared before the Budget and, secondly, had looked at two measures in isolation rather than looking at all the Budget measures together.
Let me take one example, the taxation of company cars. We all know that the amount of benefit in kind which is subject to taxation if one has a company car has been increased year by year for the past five years or so, and has now reached the point—I fully support this, I may say —at which taxpayers are now required to pay tax on the full economic benefit of having a car. We also know that most people who drive company cars are on higher salaries, and we must take account of that in assessing the overall distributional effects of the Budget.
I am therefore most grateful to my hon. Friend the Financial Secretary for confirming what I believe—that it is important to look at all these cases together, although we are just debating the one change at the moment, the decision not to index tax thresholds. If we do that, we find that the effect is reasonably fair for everyone. We must all bear a bit of pain, and all income tax payers must pay a bit more.
One of the more important of the difficult decisions made by the Government to raise more revenue was not to increase the tax rate. Some people have said that it would have been more straightforward to do so, and they have asked why the standard rate or the higher rate of income tax was not increased. I believe that it would have been a mistake to do so.
4.45 pm
To increase either of the tax rates would have been a major disincentive for people, a step backwards. What my hon. Friends at the Treasury have done is to take another major step forward to a tax rate of 20p in the pound. That is very good news indeed. It is our ultimate objective, and we have taken another small but important step towards it in this Budget. In the long run, it will be a very popular decision. At the time of last year's Budget, the decision was derided by some. They said that the Chancellor had got it wrong, but only a few weeks later, the electorate decided

that the Chancellor had got it right. It was the right decision to introduce a 20p tax band. It was a decision that I supported, and I very much welcome the present decision to increase the tax band.
I want to have a look not just at the need to fund the public sector borrowing requirement, although I feel that it is incumbent on Opposition Members, if they object to every tax increase, to say where they would get the money from. It was noticable in Monday's debate that the hon. Member for Peckham (Ms Harman) consistently refused to say how a Labour Government would increase taxes. That is not a responsible action. With a large PSBR, some decisions to increase taxes are necessary, and we should be told what the Labour party's alternatives are. But I do not suppose that we will hear anything about that in this debate. [Interruption.] Does the hon. Gentleman wish to say something? If so, it is normal practice here to stand up.

Mr. George Howarth:: If the hon. Gentleman is trying to tempt my hon. Friend the Member for Peckham into responding, perhaps he could say how he thinks the Chancellor should fund the PSBR next year. If he cannot do so—and I suspect that the Chancellor cannot —how can he expect my hon. Friend to say how she would do it in two or three years' time?

Mr. Smith: There are published proposals that take us through to March, 1996, three years away. They are projections, but what else could they possibly he? They cannot be statements of faith.
I will tell the hon. Gentleman something. The Treasury has been widely criticised for failing to forecast what the PSBR is likely to be, but I refer the hon. Gentleman to a table in the Red Book—which I will probably be unable to find now because of the size of the Red Book and the fact that I need to keep on talking while I look for it. Because we now have a panel of independent advisers, somewhere in the Red Book—my hon. Friend the Financial Secretary may be able to find it for me—is a very interesting table which shows that each of the independent forecasters has made a separate forecast for the PSBR, and that in 1995–96 the discrepancy, if I remember rightly, is between £20 billion and £50 billion.
That demonstrates the difficulty of forecasting a figure which is itself the difference between two very large figures. It is like trying to forecast the balance of payments. So what the hon. Member for Knowsley, North (Mr. Howarth), who keeps intervening from a sedentary position, should appreciate is that forecasting is an extremely inexact science.
While the Treasury has got it wrong, so has every other economic forecaster. The table, which I now learn from my hon. Friend the Financial Secretary is on page 54 of the Red Book, shows that Mr. Wynne Godley has the highest forecast of PSBR, at £60 billion, in 1994–95. It is only next year that we are talking about, less than a year away. Mr. Godley is forecasting £60 billion, whereas Mr. Congdon is forecasting £38 billion, a difference of £22 billion in the forecast of the PSBR for next year. That illustrates the difficulty in forecasting the PSBR.

Mr. Robert Ainsworth: Would the hon. Gentleman care to make a few comments on the forecast immediately before the last election of tax decreases year on year, made by the Chancellor—and the Prime Minister, I think?

Ms Harriet Harman: That was not a forecast; it was a promise.

Mr. Smith: Unfortunately, I do not have last year's Red Book with me, so I cannot say what tax decreases were forecast. But, of course, the main tax decrease that was proposed in last year's Budget was the introduction of the innovative 20p tax band to which I have already referred, which was opposed by Opposition Members but was widely supported by the electorate only a month later in a general election.

Mr. Jim Cunningham: I accept what the hon. Gentleman said about the 20p or 20 per cent. tax band, but does he not agree that that was offset last year and this year—last year by the increases in VAT and this year by the proposed increases in VAT?

Mr. Smith: I have already said that increases in taxes are unpopular, but Governments have to make unpopular decisions sometimes, in the national interest. That was an unpopular decision that will form the basis for sound economic recovery.

Mr. David Shaw: My hon. Friend is talking to an amendment on revenue raising and the issue whether we should be raising additional revenue. He drew attention to the fact that the Opposition spokesman, the hon. Member for Peckham (Ms Harman), refused to detail how alternatively she would raise additional revenue. Does he conclude that, if she proposes to keep the PSBR the same, she now really wants to reduce public expenditure? Is that not a major change for the hon. Lady and the Labour party? Does the Labour party now want to cut public expenditure significantly, if it will not raise additional revenue?

Mr. Smith: I am very sorry to disillusion my hon. Friend, but I recall that, in her speech on Monday, the hon. Lady's solution to the PSBR was to cut taxes and increase spending. She said "Let's have more spending on education and training, and let's have more investment allowances for companies." That means lower business taxes and higher public spending. I am only a simple accountant, but if one cuts taxes and increases spending, I think I am right in saying that one adds to the PSBR. So I do not think that the hon. Lady's solution is the right one.
My hon. Friend the Member for Dover (Mr. Shaw) is entirely right. There are only two possibilities: one has either to increase taxes or to cut public spending. Those are both difficult and unpopular decisions that Governments have to take.
The second yardstick by which this matter should be considered is the decision in the Budget to devote what help was available to business ensuring that the tax cuts that could be made went to business. That was the right balance, I think, at the present point in the economic cycle.
As my hon. Friend the Member for Dover said, as a result of that, this Budget was widely welcomed by business. If we look at the table on page 6 of the Red Book, we can see why. The decision not to increase business rates by more than indexation will cost the Exchequer £370 million this year, but that decision has been widely welcomed by business, as has the decision debated last night to improve VAT relief on bad debts. That will cost £150 million in the current year, but it will bring immediate relief to many companies that have cash flow difficulties.
There is an important balance here between business taxes and personal taxes. I believe that the Government have that balance right, too, so it was right in the Budget to make some increases in personal taxation, and that is why I support the clause.

Mr. A. J. Beith: The trouble with the small, but important, steps towards the 20p band to which the hon. Member for Beaconsfield (Mr. Smith) referred is that individually they often have the effect of not helping the poorest and lowest earners. That is a point to which I shall return in a moment. To be in favour of a general objective is not necessarily the same as supporting proceeding to it by steps which do not in themselves help the people it is supposed to help.
We have on the Order Paper two amendments with the same objective as the amendments that the Labour party has put forward today. They would stop the Government from failing to increase the personal tax allowance, but continue the freezing of the married couple's allowance. By a neat bit of gazumping, the Labour party in the course of the past three days put down more amendments, thus widening involvement in this debate.
The freezing of the personal income tax allowance brings more people into tax. I remember speech after speech by Chancellor after Chancellor and Financial Secretary after Financial Secretary saying how many people the Government were taking out of tax. If one freezes personal income tax allowances, one brings more people into tax, and they are by definition people at the lowest levels of income.
The married couple's allowance is not in the same category. Some people regard it as an anomaly because it is not related to whether there are children in the family. Freezing it seems to have become quite a common practice and to enjoy reasonably widespread support, but we would support that only so long as child benefit continues to be uprated annually, at least by the rate of inflation.
The Government are selling their 20p tax rate as if it is helping those on low incomes and is in some way a better measure than indexing the tax allowance. That is patent nonsense. The small steps taken towards the 20p tax rate, such as the one taken in this Budget, are not a significant way of helping those on the lowest incomes. It is, indeed, a kind of deception of the British people.
If steps to the 20p rate are paid for by not indexing the basic rate, one hurts the people the policy is supposed to assist. Every person with income above £3,445 will lose £18 a year, because the personal allowance should have been uprated by 2.6 per cent.—using the December 1992 RPI—to £3,535, which is £90 higher, and since they would have paid tax at 20p on that £90, the loss is £18.
Instead of uprating the allowance, the Chancellor has widened the 20p band, but this applies only to people with incomes above £5,445, so the income tax deduction from the new wider 20p band begins to offset the tax increase from not indexing only for people who have annual incomes above £5,445. It is only at incomes above £5,805 that the income tax cut from the wider band offsets the increase from not indexing the allowance, so from the point of view of those on the lowest incomes it is a poor bargain; they would have been much better off if the tax allowance had been indexed. The Chancellor continues to boast that the extension of the 20p rate is assisting the poorest in society, but in fact it does not have that effect.
The Budget shows the real reason why the 20p band method appeals: it can bring in more revenue by sleight of hand than it costs. The cost of extending the 20p rate by £1,000 will be £710 million in 1994–95 while the revenue raised from restricting mortgage tax relief to 20p in 1994–95 will be £820 million. The revenue raised from restricting the married couple's allowance to 20p in 1994–95 will be £910 million while the revenue raised from restricting the taxation of dividends to 20p will eventually be nearly £1 billion in a full year. So the gain to the Exchequer is larger than the cost. One begins to smell a rat when one sees that happening; one discovers that it is not a measure to help the lowest paid and it is also a revenue-raising measure.
The Chancellor, nearer the next election, will announce that he is widening the 20p band yet again. I use the word "Chancellor" in the way in which the Prime Minister now uses it, to denote whoever happens to hold that office. I say that advisedly because I have been passed a note saying that the Chancellor, speaking elsewhere, is announcing at this very moment that he does, after all, have some regrets. I have no information about which matters he regrets—we shall discover that on another occasion.
When his successor, whoever that may be, announces that he is widening the 20p band again to give millions of people a tax cut, will he point out that that 20p band has cost people money? The numbers will work out in favour of what the Chancellor claims to be his policy only if he fully replaces the 25p rate by the 20p rate. Given the PSBR forecast, there cannot be any serious possibility of that happening.
5 pm
The hon. Member for Beaconsfield (Mr. Smith) referred to the basic decision in the Budget not to increase the standard rate, but instead to use the national insurance contribution as the means of raising the equivalent of a penny, or somewhat less than a penny, on the standard rate of income tax. The hon. Gentleman justified that by reference to the national insurance fund and to the fact that the insurance fund will be in deficit if that is not done. But it will still be in deficit even if that is done. This action is not a balancing act or an actuarial balancing of a contributory national insurance fund, but the Government raising a penny on income tax without breaching the doctrinal objection to raising a penny on income tax which their election commitments represent.
As the Government have broken so many of their other election commitments in the tax area, I think that we, as Opposition parties, could now absolve them from any further commitment or responsibility at all. Nobody believes that the Government are bound by any of those promises any more, so they are entitled to start assessing what might be good for the country as opposed to which of their promises they are prepared to break and which they are not prepared to break.
If the Government are to raise the equivalent of a penny on the standard rate, they should do it by the standard rate system and not by a system which fails to tax higher levels of income, fails to tax benefits and perks and fails to tax investment income. That is not a sensible route to take.

Mr. Tim Smith: Will the right hon. Gentleman confirm that it is Liberal Democrat policy to increase the standard rate of income tax?

Mr. Beith: We are in a rather different position from that of the hon. Gentleman's party. At the general election, we told people that in some circumstances we would raise the standard rate of income tax, and we defined those circumstances. The hon. Gentleman, who said that he would never raise the standard rate, can hardly criticise me when he now represents and appears to support the actions of a Government who have done so, and who have done it through the national insurance route and have used a quite spurious argument for doing so.

Mr. Dorrell: Would the right hon. Gentleman make it clear that he is distinguishing his position from that of the Labour party by saying that he is still bound by the commitments that he gave to the electorate at the general election?

Mr. Beith: That is an odd question from a member of the Government: I cannot fathom its intricacies, particularly in reference to the Labour party. I shall seek to uphold the policies and ideas that we put forward at the election. I hope that the Conservatives, like most political parties, will have the sense to notice if they are occasionally wrong. The Chancellor has announced that he now has some regrets, but so far I see no reason to change any of the policies that we advanced at the election.

Mr. Thomas Graham: The right hon. Gentleman will remember that, just weeks before the general election, the Conservatives were accusing the Labour party of proposing a £36 billion PSBR. Yet the Conservatives are now introducing proposals similar to those advanced by the right hon. Gentleman. After one year of this Conservative Government, the country is in an economic mess. I am sure that if we had a good look at the books any one of us could do a better job than the Government are doing.

Mr. Beith: It is nice to have such robust help in Committee. The hon. Gentleman makes a fair point.
I wanted to argue the merits of being straight about using the standard rate rather than disguising standard rate increases through national insurance increases which do not bear fairly on people and do not raise so much revenue. The reason for that is that they do not apply to levels of income above £420 per week, they do not apply to benefits and perks, and they do not apply to investment incomes. We have proposed ways in which we could move from the present system to the wholesale amalgamation of national insurance with the income tax system. If the Government propose to add to the tax take, they should at least do so by using the standard rate income tax system.
There are huge costs to the Government and even greater costs to business from our persistence in running the two systems side by side. I do not share the belief of the hon. Member for Beaconsfield that we can somehow resurrect the contributory system which, in effect, has been destroyed. There is no actuarial balance in the fund; it is all a myth. The hon. Gentleman knows that perfectly well; otherwise, he would tell me that there was not a £2 billion deficit in the national insurance fund and that it was all covered. He knows perfectly well that it is not covered and that the fund is not in balance.

Mr. Tim Smith: Entitlements to benefits depend on contributions. That is a good thing. Is the right hon. Gentleman saying that he would sweep all that away as well?

Mr. Beith: The hon. Gentleman must also know that most of what is paid out in the form of benefits is not based on contribution entitlements. The contribution side now plays a small part. The hon. Gentleman should reflect sometimes on the extraordinary position in which people such as his constituents find themselves. As Members of Parliament, we have to give them a letter which explains that their failure to make two contributions in 1956, of which they were unaware at the time, has left them unable to claim a benefit now. The whole system is creaking and groaning, and it is time for it to be replaced by one which streamlines the two measures. However, that takes us wide of the clause.
I am arguing that the Government are trying to use a variety of other devices to avoid doing what they would otherwise be doing in the circumstances. They would be saying, "We got it wrong; the economy was in far worse off a mess than we said; the PSBR is appalling and will continue to be appalling; we must raise more tax and we shall therefore raise the standard rate." That is what the Conservative Governments might have done in previous years, but they do not do it now because they have made a fetish of never raising the standard rate of income tax.
When we think about the allowances, we are bound to reflect on the strange perks and loopholes which still exist in the system. At the moment when the Government are exacting from people the extra costs of not indexing the allowance, Ministers appear still to enjoy the perk of having cars to drive them from their homes to their Departments. They still appear—I say "appear" because I get very evasive answers from Ministers—not to be paying tax on a benefit which is taxable for anyone in an equivalent position.
All sorts of mysterious perks and hidden benefits are still tucked away in the tax system. Such perks never work to the benefit of people at the lowest levels of income. Those people are hit by the full force of the pay-as-you-earn system, and if they are at the bottom of the scale they are hit far more forcefully than those at higher levels of income who do not have to bear the higher cost of national insurance contributions.

Mr. Milburn: The right hon. Gentleman says that he receives evasive replies from Ministers. I do not know whether he had an opportunity to read The Guardian this morning. The Financial Secretary is quoted there and I thought that his reply was far from evasive. He made it clear that, if he had to pay the full tax that was due on the perk, he would get up and walk.

Mr. Beith: Not only did I read the article, but there is a quotation from me in it, as the hon. Gentleman may recall. I do not remember those words being attributed directly to the Financial Secretary. A number of other interesting comments were attributed to other Ministers, or were said to have been made by unnamed Ministers.
In the course of the day, it has been drawn to my attention that, when the basis on which the concession appears to exist was introduced—it was part of a change made by Denis Healey when he was Chancellor which was intended to bring all journeys to work within the tax system—Ministers were told that it would not affect them and that it might be a good idea if they occasionally gave their civil servants a lift because that would help to emphasise the fact that the car was for business use and not a perk.

Mr. Tim Smith: Did Denis Healey say that?

Mr. Beith: I do not know who gave the advice, but I believe that such advice was given.
The clause and the amendments relate to those at the bottom of the tax scale who get none of the little let-outs and loopholes. They bear the full brunt of tax, and in a number of respects they will be disadvantaged by the small steps towards a 20p band if those small steps are financed by tax allowances not being indexed.
The work done by the hon. Members for Preston (Mrs. Wise) and for Birmingham, Perry Barr (Mr. Rooker) in the famous amendment was an important part of tackling poverty. It was a measure to ensure that the Government did not continue without statutory or parliamentary authority to scoop tax from those least able to bear additional tax burdens. In any year in which the Government fail to abide by the Rooker-Wise principles, they deserve to be challenged and tested, because the case that they have advanced for gaining extra tax income to deal with the PSBR is not improved when elements of that tax income seem to be earned unfairly from those least able to bear it.
The case is undermined by the fact that the failure to spend money on various investments has prolonged the recession and, therefore, increased the PSBR. If the Government want to come to the House and say, "Yes —we made a mess, we have a problem and we have a huge public sector borrowing requirement; as the Red Book shows, we shall have a huge public sector borrowing requirement even if we get growth; yes, we need to raise tax revenue to get that growth," why do they not use known, fair and trusted parts of the tax system to raise that revenue instead of raising it by the back door?

Mr. Milburn: My hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown) described the freezing of personal allowances as a sneaky measure. He is absolutely right, because the freezing of personal allowances is a tax rise in all but name. The measure will hit both ends of the income scale. It will bring more people on middle incomes into paying tax at the higher rate. It will have a serious impact on poorer families in my region—hon. Members will know that my region has the greatest concentration of low-paid people in the country. It will ensure that they pay a hefty price for the Government's economic mismanagement.
I was taken by the speech of the hon. Member for Beaconsfield (Mr. Smith), who managed to dig himself into a substantial hole by arguing that, in 1981, it was necessary to do exactly what is being done now, in the hope that it would never be done again. However, 12 years later we have more unemployed people, a bigger public sector borrowing requirement and graver economic circumstances than ever before. Who was in charge during that period? It was certainly not the Labour party. The Minister and his hon. and right hon. Friends got us into the current mess. Frankly, the poorest people in the country are now paying the price for that mess.
The measure before us today is not only a tax on the poor—it is a tax on my region in the north. Across the country, 300,000 people who do not pay tax at present will be brought into the tax net for the first time. The 4.5 million people who are low-paid and who pay tax at the 20p rate at present will also lose. They will not gain a penny from the extension of the 20p band, but will lose


from the freezing of allowances. They will be asked to contribute to the £700 million tax bill that the freeze on allowances will cost taxpayers.
As usual, the Red Book is fairly categorical. We are talking about enormous sums of revenue that will be raised by this back-door tax rise. Inevitably, the measure will penalise those who are least able to pay. That is in keeping with the Government's record of switching the tax burden from the rich to the poor in the 1980s. The poor were certainly not invited to the tax-cutting party of the 1980s, but they are now being asked to clear up the mess. The hon. Member for Beaconsfield and his hon. Friends are to blame for that situation.

Mr. Tim Smith: Did the hon. Gentleman not hear the figures that my hon. Friend the Financial Secretary gave to the House? Under this Government, the personal tax allowance has risen substantially in real terms, whereas it fell under a Labour Government. If the Labour party is so committed to the eradication of poverty, why did a Labour Government so furiously resist the Rooker-Wise amendment?

Mr. Milburn: If the hon. Gentleman has read this Red Book and previous ones, he will know that the tax system has changed over the past 14 years, from one in which the rich paid more tax than the poor to one in which the poor paid more tax than the rich. It is a Robin Hood in reverse —and the figures are categorical. As the Financial Secretary knows, between 1978–79 and 1992–93, a typical family on average earnings has seen its tax burden rise from 35.2 per cent. to 36.7 per cent. of its income. Between 1979 and 1990, the poorest 20 per cent. of households saw their tax bill rise from 30.7 per cent. to 39.7 per cent. of their income, while the top 20 per cent. saw their tax take a fall from 37.3 per cent. to 33.5 per cent.

Mr. John Butcher: I refer the hon. Gentleman to some questions tabled by the then Labour Front-Bench spokesman, the Member for Blackburn (Mr. Straw), about the effect on the tax take of reducing the top income tax rate from 60p to 40p. What he discovered in hostile questions was that not only the cash amount from the richest section of the community increased but the proportion which the richest section of the community contributed to the total tax take increased as well. The supply side effect was real.

Mr. Milburn: The hon. Gentleman must have read my speech, because I am coming precisely to the effect of the top rate tax cuts and the contrast between the 1988 giveaway Budget under Chancellor Lawson and the current Budget.
The shift in the tax burden from the rich to the poor has been achieved by deliberate Government policy instruments. For the poor, it has been achieved by shifting the burden of taxation from direct to indirect taxes.
At the same time, a growing number of people on low incomes have been drawn into paying tax through fiscal drag, as their tax-free income has shrunk in relation to average earnings. For the rich, the shift has been achieved by huge cuts in the top tax rate. I shall refer to that point in a moment.

Mr. Robert Ainsworth: We repeatedly hear the point made by the hon. Member for Coventry, South-West (Mr.

Butcher). The issue is that, by putting the tax burden on the rich, we are getting more tax from them. Is it not the case that that is a deception, and that the real reason why we are getting extra taxation is that many more people pay it because the indexes have not been raised in line with inflation in the way that they should be? Is that not something that the Government repeatedly try to get away with?

Mr. Milburn: As always, my hon. Friend is absolutely right. It is yet another case of the Government trying to perpetrate a con on the British people. The information that I have from the Financial Secretary is clear—vast sums of money were given away in the top rate tax cuts. According to his parliamentary answers, £9.5 billion has been given away to the richest people since 1988.

Mr. Dorrell: So that we are proceeding on the basis of facts rather than assertions, I must point out that the top 5 per cent. of taxpayers in 1978–79 contributed 24 per cent. of the total yield of income tax. In 1993–94, that same top 5 per cent. is expected to contribute 32 per cent. of the yield of income tax. That is the top 5 per cent. of income tax payers.

Mr. Milburn: The Financial Secretary obviously wants to bandy statistics—I am happy to do that. Perhaps he would like to tell us how many people are in the top 5 per cent. and what the spread is in the benefits of top rate tax cuts. According to his parliamentary answers, almost 60 per cent., or £5.5 billion, of the £9.5 billion handout and giveaway went to top rate taxpayers in one region of the country—the south-east.
It is no wonder that there was a huge fiscal stimulus to the economy in the south-east but, of course, we are now suffering the consequences of overheating, shortage of skilled labour, pressure on the green belt and a huge explosion in house prices. The brakes had to be slammed on, as they were two or three years ago, and we are now paying the price. We are shivering as a consequence of a countrywide recession, which is the result of the sort of measures that were implemented in 1988 by the Minister and his predecessors.

Mr. Jim Cunningham: My hon. Friend referred to what the top 5 per cent. paid in taxation. Does he agree that their income also rose in that period?

Mr. Milburn: We have seen an explosion in the incomes of the very richest people. I described earlier how the top 20 per cent. have done so well, while the bottom 20 per cent. have done so poorly. There is no doubt that families on average earnings are, as a consequence of the Government's fiscal policy during the past 14 years, paying more of their income in tax than ever before. Those are the stark facts: the Financial Secretary cannot argue with them.
I give one example. A top rate taxpayer in the south-east of England is on average at least £10,000 better off as a consequence of top-rate tax cuts. The south-east has not been the biggest regional gainer. The south-west takes the lead in the top-rate tax cut league. It is interesting to examine which parts of the United Kingdom do least well out of top-rate tax cuts. Not surprisingly, Northern Ireland and my region, the north, received the smallest benefits as a consequence of the cuts in top-rate income tax.
What a contrast between 1988 and the Finance Bill that we are debating today. In 1988, there was an enormous handout and a tax bonanza for the rich. As a consequence of the measures presented by the present Chancellor in his Budget this year, there will be tax increases of £6.5 billion in 1994–95 and £10.5 billion in 1995–96.
The cost of imposing VAT on heating alone will mean £950 million in higher bills next year and £2.3 billion in the following years. The whole country is paying the price for the Conservatives' tax bonanza for the wealthy in 1988. What they gave away with one hand to the very rich, they are taking back with the other from pensioners, families, the low-paid and those on middle incomes. It is an odd reversal of the Robin Hood story when the poorest end up subsidising the richest in our community.

Mr. Graham: The other day I spoke to a woman in my constituency who told me that she had looked at her diary for 1979. It was faded, but she noticed that her husband was working, her two sons were working and she was going on holiday to Benidorm. Now she is not going on holiday to Benidorm, her son is not working, her other son is on low pay and her man is almost crippled with illness.
In 1979, at least they were all working and they could afford to pay tax. Now 4 million people are desperate and 3 million people are unemployed. The other night we passed a measure which will mean that 9 million pensioners will have to pay through the nose to heat their homes. The Government are proud of that record. The crisis is one of their own making. My hon. Friend has elaborated on that well tonight.

Mr. Milburn: My hon. Friend is right. He graphically describes the problems that the Government have imposed on millions of people in Britain. It is not merely a question of complacency. It is a question of the Government's inability to apologise to the British people. We saw that most graphically in the private notice question just before this debate. I will not go into that, Mr. Morris, because I can see that you wish me to move on. I will take that hint seriously.
So we are now all paying for that tax bonanza. By freezing personal allowances, the Government will force the tax burden of low and middle-income families through the roof. Rightly, people will feel betrayed by a party which in its general election manifesto just one year ago loudly declared:
we are the only party that understands the need for low taxation.
The Conservatives' tax-cutting credentials have been shot through by this measure and other measures in the Finance Bill. In just one month next year—April—the British people will feel the effect of the cuts in mortgage interest relief at source and the married couple's allowance, the increase in national insurance and the introduction of the fuel tax. Ministers might not be so complacent then. Certainly the crisis of confidence which the Government face will not go away, because too many people are paying through the nose for the mistakes that have been made.

Mr. David Shaw: The Government have had a difficult Budget to prepare when we are, as we have now discovered, at the end of a recession. As we reach the end of the recession, sadly, unemployment—the lagging

indicator—increases and the deficit continues to rise for some time after one has hit the bottom. There is no doubt that we are having to raise additional finance because we have an excessive budget deficit.
There are not many ways in which one can deal with an excessive budget deficit. Indeed, my accountancy career has taught me that there are only three: we can borrow, if someone will lend to us, but if the deficit is excessive, people do not want to lend to us; or we can raise additional revenue; or we can cut expenditure.
It is clear that no one in the Conservative party wanted major areas of expenditure to be cut. They did not want pensioners, invalids, or those on disability benefits to suffer and they did not want cuts in health service or education expenditure. Consequently, the Government have chosen the course of raising some additional revenue and they should be applauded for taking that courageous decision.

Mr. Robert Ainsworth: If the Government decided that the right course of action was to raise revenue, why did not they seek to raise it from the very people who gained from the tax cuts that they introduced a few years ago? Why are the Government seeking revenue increases from the bottom part of the earnings structure when they gave those tax breaks to the top?

Mr. Shaw: As my hon. Friend the Financial Secretary said, the hon. Gentleman and his colleagues are living in a mythological world. In many instances, the top 5 per cent. who received the reduction in the rate of taxation have increased their earnings and the wealth that they have brought into the country. As a result, they have paid an increased proportion of the income tax bill. That is a major achievement and we must encourage that expansion.
I want the top rate of tax to come down lower. It is sad that we wish to cut only the basic rate from 25 to 20 per cent. We should consider how to reduce the top rate from 40 per cent. We are now competing in the world to bring the wealth creators to Britain. If we could encourage more of them to come here, more revenue would be raised from income tax at lower rates. That is the great achievement of the Government.
I return to my key point. We must either raise revenue or cut expenditure. The Opposition argue that we might be in a different world if they were in office. They say that the deficit would be considerably less. They are trying to con the electorate into believing that if they were in office, we would be in a make-believe world. That is the only world that would be different. One cannot say that if Labour was in office there would be no German recession, no French recession and no American recession. We live in this world. We do not live in the make-believe world that the Labour party would like to exist if it was in office.
So revenue had to be raised in the Budget. Clause 52, with which the amendment deals, is the right clause and the right measure to raise additional revenue.
Public finances have to be prudently managed. Reference has been made to the Labour manifesto's proposals which we costed at some £37 billion. I commend the hon. Member for Renfrew, West and Inverclyde (Mr. Graham) for remembering that figure. That £37 billion was not what the deficit might have been; it was additional to any deficit that we now have. If Labour had been in office and the recession had continued—I am talking about the recession in America, Germany and France, which are


key export markets—we would be looking at a deficit not of £50 billion but of £50 billion plus £37 billion; a deficit of at least £87 billion, approaching £100 billion.

Mr. Jim Cunningham: Will the hon. Gentleman give way?

Mr. Shaw: I shall give way to the hon. Gentleman, who no doubt wants to explain how a Labour Government would have financed such a deficit.

Mr. Cunningham: I shall not explain that aspect. I should have liked the hon. Gentleman to have gone on to say that the difference between the Labour party and the Government at the time of the general election was that Labour borrowing would have been used for investment, whereas the money that you have borrowed is to pay your debts. That is the fundamental difference between you and us.

The Second Deputy Chairman of Ways and Means (Dame Janet Fookes): Order. I remind the hon. Gentleman that he is addressing me when he says "you", and I am not responsible.

Mr. Cunningham: I apologise, Dame Janet.

Mr. Shaw: I disagree with the hon. Gentleman because I, like many people, studied the Labour party manifesto carefully. More significantly, I made a number of interventions in the speeches of Labour Front-Bench spokesmen in the year or two before the general election asking if the commitments that they were annoucing at the Dispatch Box were firm commitments. I started to add them up on the back of an envelope and on my calculator. They were not capital commitments to invest in Britain's future. Many of them were revenue commitments to invest in more pay, more salaries and more bureaucracy. They were the sort of commitments that would have to be funded with increased borrowing. As an accountant, I know that to fund wages and salaries with borrowing is the worst sort of deficit financing.

Mr. Graham: I take the point that the hon. Gentleman did his sums on the back on an envelope. I am pretty sure that everyone in the Committee and in the country will agree that the Government, too, have done their sums on the back on an envelope. The hon. Gentleman has a fond interest in Scottish affairs. In Strathclyde we have lost more than 50 per cent. of our manufacturing jobs since 1979–166,000 jobs. The Labour party planned an investment and training programme. That was what part of the sum was intended for. That was welcomed by the people of Scotland and, I am sure, by the people of Britain who wanted Scotland once again to be the engine of recovery. The £36 billion of public sector borrowing would clearly have been welcomed. It would have provided a basis from which to build on in the future and we might not have had this recession, which has clearly been created by the Government.

The Second Deputy Chairman: Order. The hon. Gentleman's intervention is becoming a speech.

Mr. Shaw: I recognise the hon. Gentleman's contribution. As he rightly says, I have a great interest in Scotland and some Scottish affairs. I am sure that he will recall that under Labour, between 1974 and 1979, not just

in Scotland but in the country as a whole, manufacturing output fell and we had a record number of industrial disputes and a major problem in getting enough investment in British manufacturing.
Yesterday, the Select Committee on Social Security heard from managers of the British Coal pension fund about its problems. It was notable that the deficits from the fund's investments occurred under a Labour Government who made generous contributions to compensate. The surpluses that have improved pensioners' benefits have come since the Conservative Government have been in office. Those surpluses have been earned from the success of British business and British industry, so there has been a major transformation.
We might well ask why some areas of Scotland, for which the hon. Gentleman and I share an interest and concern, have not benefited. I am concerned, even as the Member of Parliament for Dover, that some of the benefits in our economy are not filtering through into the Scottish economy. The only possible explanation is that too much of the Scottish economy is managed by Labour-controlled local authorities.
If we could shift the resource base from the Labour-controlled local authorities in Scotland into the private sector, my constituents in Dover would benefit from a better managed economy. The Government might not even have had to introduce clause 52. Public finances overall would be better managed because we would be spending less money in the public sector and getting more profitable investment and more profitable resource development in the private sector.

Mr. Graham: The hon. Gentleman mentioned Scotland, but he must realise that the Scottish public have rejected the Government for decades. I wish that the Scottish people could have a wee turn at giving the Prime Minister a bloody nose like the English and Welsh voters. I am sure that they would give him a real belt in the belly if they had the chance of a referendum.

Mr. Shaw: I do not want to stray too far from the subject, but the hon. Gentleman must accept that the problems that are developing in Monklands, East and a number of other key Labour areas show that a unique opportunity is developing for the Conservative party in the 1990s in Scotland. There is no question but that, when the people of Scotland see how much employment in the public sector is taking job opportunities from the private sector in Scotland, there will be a transformation in the Government's political fortunes in Scotland. That is already occurring, as can be seen from the improved results in Scotland at the general election.
But to return to my main point, if Labour had been in office we would not be sitting here today talking about whether we can afford to index personal allowances or other allowances. We would be talking about how to deal with a major deficit of enormous proportions—potentially £100 billion.

Dr. Roger Berry: Does the hon. Gentleman recognise that the rate of growth under this Government has been the worst of any post-war British Government and far worse than that of the previous Labour Government, that as a result unemployment is far higher and that that is the major reason for the high level of public sector borrowing?

Mr. Shaw: I just happen to have a graph here which I have produced on my computer. However, graphs cannot be recorded in Hansard, so I shall have to talk about it. I assure the hon. Gentleman that the real prosperity clearly existed in the 1980s. The only significant cuts in public expenditure where the line on the graph falls below zero took place under a Labour Government in 1975, 1976 and 1977. Since then, public expenditure and the nation's prosperity have continued to improve. Therefore, I cannot accept what the hon. Gentleman says.

The Second Deputy Chairman: Order. Before the hon. Gentleman continues, I should point out that he is going wide of the amendment. I have given one or two warnings already and if the hon. Gentleman or any other hon. Member persists, they will have to resume their seat.

Mr. Shaw: Thank you, Dame Janet. I desperately wanted to get back to the main point, but I was diverted into Scotland and some of the wider issues of the economy. I appreciate that you are being your usual firm self, but I realise, as I am sure do many, that a better balance in many areas of the economy, of which Scotland is one, between the public and private sectors, would mean that the private sector would create more jobs and there would be less deficit and consequently less need to restrain the increase in personal allowances in the way in which the clause does. That is the key point. The real issue raised by the Opposition in this debate is whether we should curtail allowances or raise the rates of income tax. The Opposition have not lost their old clothes. They have dusted them down again, having found them in the closet. They want to raise the rates of income tax. I cannot support that view.

Mr. Nicholas Brown: That is not so.

Mr. Shaw: The hon. Gentleman says that that is not so. If he does not want to increase revenue by raising the rates of income tax, either he must want to cut expenditure or he must want to borrow more. If not, I do not see how he will be able to meet the deficit which, as I said earlier, occurs not just in the United Kingdom but worldwide.

Mr. Brown: I made this point to the hon. Member for Beaconsfield (Mr. Smith), but perhaps the hon. Gentleman was not paying his usual attention. In 1988, the Labour party voted against the Government's top rate tax cuts. That is still our position. We should not have a deficit if the top rate of tax had not been cut, for it amounts to a substantial sum of money.[Interruption.] The Financial Secretary laughs, but cumulatively that extra sum of money would have been available to the Government since 1988. The purpose of our amendment is not to increase income tax. Its purpose is to restore the allowances that the Financial Secretary and the Chancellor of the Exchequer are trying to freeze.

Mr. Shaw: I know that the hon. Gentleman uses a wide base when he studies these issues. He has heard of the Laffer curve. If the rate of taxation is too high, the amount of revenue raised goes down. The Financial Secretary has produced the figures and has shown that, by reducing the top rate of income tax, we have increased the revenue take from the top earners. That, surely, is the key point.

Mr. Brown: But the hon. Gentleman must acknowledge that now there are 1 million more of them.

Mr. Shaw: The point that I acknowledge is that the top 5 per cent. are paying more as a proportion of the total income tax take.

Mr. Dorrell: rose—

Mr. Shaw: Does my hon. Friend wish to confirm that point?

Mr. Dorrell: Yes. The hon. Member for Newcastle upon Tyne, East (Mr. Brown) is completely wrong. The group of people about whom I was talking numbered 1.3 million in 1978–79. In 1993–94, it numbers 1.2 million, so, for what it is worth, there has been a fractional reduction, not a big increase in the number of individuals concerned. What has increased is the share of the income tax burden that those 1.3 million or 1.2 million people contribute. That share has increased sharply, from 24 per cent. to 32 per cent. of the total yield of income tax.

Mr. Shaw: What my hon. Friend has said shows that it is a truism that, if we reduce the rate of income tax, we increase revenue. That must be a very important lesson. I know that the hon. Member for Newcastle upon Tyne, East wants to rise and confirm that those who sit on the Opposition Front Bench have now learnt that lesson.

Mr. Brown: We are talking, I think, about different groups of people. If I heard him aright, the Financial Secretary is talking about the top 5 per cent. of high earners, to whom he referred earlier, whereas I am referring to all those who pay tax at the top rate. The hon. Gentleman's argument is absurd. If one received more revenue by reducing the tax rate, the logical assumption is that even more revenue would accrue to the Government if one reduced the tax rate yet further, but that obviously is not the case.

Mr. Shaw: The hon. Gentleman knows how the graph works. He also knows how the calculation works: that at a tax rate of 100 per cent. there is zero revenue, because there is no point in going out to work. The hon. Gentleman must also know that if one reduces tax rates to too low a level, the Government will not raise the maximum amount of revenue. The key point of the Laffer curve as it is computed is that the optimum tax rate is of the order of 15, 20 or 25 per cent., depending upon which country one is in and depending also upon the financial base that one uses. It is clear that, even at 40 per cent. tax rates, there may be the opportunity to lower still further the top tax rate and increase revenue.[Interruption.] The hon. Member for Newcastle upon Tyne, East told me off for not paying attention, so he should not converse with the hon. Member for Birmingham, Perry Barr (Mr. Rooker), but perhaps he suffers from my weakness from time to time.
The key point is that the Government have made the decision not to change allowances, thereby increasing revenue, instead of attempting to raise additional revenue by increasing the rate of income tax. That would have been a disincentive. It would not have been the right thing to do as we come out of the recession. It would have put on the motor car's brakes; it would have stopped the engine; it would have taken away the fuel that can help us to get out of the recession. The Government have done the right thing and it was a sensible decision to make.

Mr. Tim Smith: Is not it clear from these exchanges that the Opposition have learnt nothing from the experience of


the past 14 years? Some people may think it incredible that my hon. Friend should suggest a tax rate of 100 per cent., but there was a tax rate of 98 per cent. in 1979. That was the rate that we inherited.

Mr. Shaw: I agree with my hon. Friend. If ever there were a case for a "quickie" general election, it would be on the basis of what we have heard from those who sit on the Opposition Front Bench today. The Opposition have no new taxation policy to present to the British electorate. All they want to do is to tax the British electorate more and more and to employ more and more civil servants and bureaucrats. The Opposition still have the wrong policies for tackling the economic issues that face us as we come out of the recession. The fact of the matter is—

The Second Deputy Chairman: Order. How does this relate to the amendment under consideration?

Mr. Shaw: You are right, Dame Janet. Again I have been taken slightly away from the point. I was carried away by my enthusiasm for increasing our majority and having another term in government.
The key point is that we are still wedded to reducing the rate of income tax over a period of time. That was featured consistently in our successful, election-winning manifestos. The Opposition want to tackle the tax issue differently. They want to raise tax rates and change the way in which taxes are raised. Our policies contain the right balance. The Budget was skilfully constructed in the middle of a worldwide recession that is causing great difficulties. The Budget deficit continues to increase and the lagging indicator—unemployment—is inevitably at a higher level than one would like.
Clause 52 reflects the fact that both the foreign and the domestic financial markets have given the Government a considerable vote of confidence. The British electorate should recognise the fact and consider giving a further vote of confidence to the Government in any future by-elections. That vote of confidence should be based on the difficult decision that is reflected in the clause we are debating.

Mr. Rooker: What we are debating today, if we cut through the bull and the smears on Opposition policies by Conservative Members today, is a tax increase on the low-paid. At least 300,000 people, who would not otherwise have to do so, will now have to pay income tax. Furthermore, those at the bottom end of the tax threshold —4.5 million people—will not enjoy the benefits that they ought to receive. We shall no doubt hear the Financial Secretary refer to what happened between 1974 and 1979. That point has already been made clear in interventions.
My conscience is clear. My record is okay. The same cannot be said of the Government's record. In 1993, the tax burden on the British economy is greater than it was in 1978–79. Compared with this Government's record, the last Labour Government have nothing to apologise for when it comes to the tax burden on the British economy. I freely admit that the burden is shared differently—hence the steps that I took as an individual hon. Member in 1977. Earlier, I interrupted from a sedentary position to remind the hon. Member for Beaconsfield (Mr. Smith) of the date —14 June.
If the Finance Bill had not been amended in 1977, we would not be able to hold this debate today. We can debate

this proposed tax increase on the low-paid because of what happened in Committee on 14 June 1977, when I and my hon. Friend the Member for Preston (Mrs. Wise), then the Member for Coventry, South-West, moved amendments on indexation. It is not the fault of the right hon. Member for Berwick-upon-Tweed (Mr. Beith), but that night we did not enjoy the support of the Liberal party. John Pardoe was upset because, as part of the Lib-Lab pact, he was obliged to vote with the Government. He was very distressed because indexation was Liberal policy.
I want to consider the obnoxious tax increase on low-paid people, and in doing so I shall give a couple of statistics on the tax burden. Between 1978–79 and 1992–93, as a share of income, the tax burden—income tax and national insurance—declined for single people, married couples and people on average earnings or above who had children. In the same period, the tax burden for people on less than average earnings also fell, with the glaring exception that the share of income that family units—couples with children—on less than average earnings pay in tax and national insurance, taking into account child benefit, is greater now than in the last year of the Labour Government. The share paid by the poorest families—those on three quarters or half average earnings—is higher than under the previous Labour Government. They are a unique group.
It is tedious to keep repeating statistics, but I will give the figures for a family with two children and 50 per cent. of average earnings. Hon. Members might regard 50 per cent. of average earnings as irrelevant or unrealistic, but average earnings are alleged to be £340 a week. When I say that, most of my constituents say "Don't talk silly—our wages are nothing like that," and that is true of the majority of people because the average is not the majority.
The share of income that a couple on 50 per cent. of average earnings with two children paid in income tax and national insurance, minus child benefit, in 1978–79 was 2.4 per cent. whereas in 1992–93 it was 6.3 per cent.

Mr. David Shaw: Will the hon. Gentleman give way?

Mr. Rooker: No.
The share of income paid by a couple on 75 per cent. of average earnings has increased from 14.6 per cent. to 15.5 per cent. In other words, whatever changes have occurred in that period, couples on less than average earnings with children have suffered uniquely and their position will be made worse by the freezing of tax allowances, which is why the clause is so objectionable.

Mr. Dorrell: I have made a calculation for a married man with two children—a single earner in the household —on half average earnings. Will the hon. Gentleman confirm that, since 1979 and at today's values, the real take-home pay of that person has risen by £67.30p a week?

Mr. Rooker: Absolutely—I am coming to that. I am talking about the income share that such a family pays in tax and national insurance. The share that they pay from their household earnings has gone up, whereas it has gone down for everybody on more than average earnings. It has gone down for single people, married couples and families on more than average earnings. It has gone down for single people on less than average earnings. It has gone down for married couples on less than average earnings without children. It has, uniquely, gone up for couples on less than


average earnings with children. What a record—low-earning families with children are the poorest-paid and the hardest stressed group in the country.
The important point is the share. We are talking about the community kitty for the country. That is the purpose of taxation—for people according to their means to pay into the community kitty. Why are the lowest-paid families on less than average earnings with children paying a larger share of their income than in the last year of the Labour Government? Why should their share of the community kitty have gone up when everyone else's has gone down?

Mr. Dorrell: Does the hon. Gentleman believe that the changes in the totality of the tax system which have been made since 1979 may have led to the enhanced rate of improvement in the take-home pay of every group in the community, including the group that he is talking about?

Mr. Rooker: Exactly, but relative to everybody else the share of the burden that they are asked to bear has gone up. The Minister cannot deny that. No one denies that their absolute earnings have gone up. Earnings kept ahead of inflation in the 1980s, which caused some of our present difficulties, but why has their share of the community kitty increased when everybody else's has gone down? Why has the share of income that the hon. Member for Dover (Mr. Shaw), as a Member of Parliament, perhaps with outside earnings, has to pay gone down? Why should the poorest paid families on less than average earnings with children, uniquely, be asked to pay more? The Minister argues that their earnings have gone up, but the share of earnings that they are asked to pay has gone up while everyone else's has gone down.
That is the reality of the debate and not what the hon. Member for Dover was saying. An increase in taxation is being proposed for the poorest people in the country. They are being asked to pay a bigger share of their income in tax than anybody else. I was opposed to that in 1977 when I proposed amendments in Committee and I am opposed to it now.
I do not deny that the spending power of all families and sectors has increased, but those on less than average earnings have done substantially less well than the better off. That is my argument. My argument is one of fairness between groups in society—those on low incomes and those on high incomes. I believe that people who have high incomes should pay a bigger share, and indeed they will pay a bigger share this year, but during this Government's term of office their share has gone down while the share taken from the poorest paid families has gone up. That needs to be emphasised and constantly repeated. That is why we oppose the clause, which stops indexation.

Mr. David Shaw: I believe that at one stage, the hon. Gentleman referred to household income rather than individual income. The average household income increasingly includes the incomes of two people—husband and wife—because more women work today under this Government than when Labour was in office. As a result, a higher rate of income tax may often be paid in a two-income household, because when the two incomes are added together more taxation is paid at the higher rate. That can often account for the phenomenon that the hon. Gentleman has identified.

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Mr. Rooker: I used the term "household income" as a figure of speech, but I was talking about earnings, and the figures that I cited related to earnings. Generally speaking, when figures are produced for a married couple with two children, it is assumed that there will be one earner and one non-earner. the wages earned by some of the women in the families affected are so low that they would not make any difference to the tables, which are produced by the research staff in the Library on the basis of parliamentary answers.
I have been talking about low pay, so by definition I have been talking about earnings, and about people who have jobs. We must not forget that the unemployed are also subject to taxation at certain periods. During the year in which they cease to be employed and during the year in which they obtain another job, unemployment benefit is part of their annual taxable income. The impost does not fall only on people with a low-paid full-time or part-time job; the unemployed are also caught in the tax net now. Some of them are also subject, at the margins, to the effects of the clause and the freezing of personal allowances.
The Minister may say, "What is all the fuss about? It is only £18 a year."

Mr. Dorrell: At the maximum.

Mr. Rooker: Yes, that is the maximum—or rather, it is £22 a year for the average family but £18 for a single person. People will say, "Eighteen pounds? That is chicken feed." Hon. Members may pay that much for their lunch or their supper, or even leave that much as a tip after their supper. But I have met constituents—my hon. Friends have met such people, and I know that Conservative Members have met them, too—who could not raise that sum at any stage in their yearly existence.
I thought of a couple of examples today involving unemployed constituents seeking to get back into work, who had used the opportunity of unemployment to further their education. But they could not pay the exam fees. One person could not pay the £10 assessment fee for nursing training. When people are that low down the income scale they do not have the money. That is why it is wholly unfair to ask those people to pay an increased share of taxation. It is immoral—there is no other word for it.
I do not accept the argument that the sum is small, because I consider that sum not in isolation but in the context of the generality of what other taxpayers are asked to pay. There should be fair shares. The well-off should pay their fair share, but the clause freezes allowances in such a way that they will not pay as fair a share as they would otherwise have done.
One of the long-running advantages of the 1977 indexation measures—although they have subsequently been amended, the kernel of them remains—is that these days at Budget time the Treasury publishes tables which make a good comparison with what the figures would have been like if there had been indexation. Indeed, I was amazed at the brass face of the Budget press release dated 16 March, with its illustrative tables on income tax rates and allowances. Every hon. Member has an average of 500 constituents who will now pay tax at 20p in the pound although they did not pay tax before the Budget. The average number is 500, so some hon. Members will have many more constituents in that position.
The Treasury tables showing the annual effects of the income tax changes in the Budget, compared with what


indexation would have provided, has to assume an increase in incomes. When comparing one year with another one must not assume that incomes will stay the same; one must assume an increase in earnings. I thought that the Treasury would assume an increase of 1.5 per cent., but not on your life—the Treasury assumed an increase of 4 per cent.
Why did the Treasury assume that incomes would increase by 4 per cent. between 1992–93 and 1993–94 when there is a 1.5 per cent. pay freeze in the public sector which also runs through the low-paid part of the private sector? What brass face the Treasury and Ministers must have to approve the use of 4 per cent. as an illustrative figure when they have introduced a pay freeze of 1.5 per cent. That is outrageous. When the Financial Secretary winds up the debate, I should like him to tell us why the figure of 4 per cent. was approved. That figure does not represent reality for most people.
I shall finish soon, because the point has been well made that the effect of the clause is a massive tax increase for the low-paid. The burden is greater for the low-paid—especially if they have children—than for the rest of the country, and to that extent it is extremely unfair.
Because of the increased burden of taxation on the low-paid, we are creating in this country an underclass of citizens who are bewildered by the system and who struggle to make ends meet from one week to the next. Hon. Members all know this from what they hear in their constituency surgeries, and from the letters and telephone calls that even Conservative Members mention. In a debate not long ago, a Conservative Back Bencher referred to the people who shuffled into his surgery with a haunted look in their eyes, the down-beaten and downtrodden who could not cope because of the increased tax burden and the cuts in benefits that his own Government had brought about. I shall not cause that Conservative Member any more trouble than he is already in by reminding the Committee of his name.
According to the average figure, 500 constituents of mine will pay tax at 20p in the pound rather than paying nothing as, because they are so low-paid, they would otherwise have done. I am speaking for those people tonight, as my hon. Friends have spoken for their constituents. No Conservative Member has said, "Well, that is it. I have some low-paid constituents, and it is tough, but they will just have to pay more tax." Conservative Members will not have the courage to say that.
Instead they will say that the budget has to be balanced and extra revenue is needed. Nobody denies that, but why take from people on lower than average earnings a greater share of their income than is taken from people on higher than average earnings? That is wholly unfair, and we shall certainly pin it on the Government.
What will the money pay for? The Government were open about that. The brief published on Budget day gave a little summary of the measures for 1993–94:
The Chancellor proposes that there should be little net change in …1993–94. Certain taxes are reduced: there is help for business and the housing market".
There certainly is help for business. Some of the extra taxation brought in by the clause—brought in off the backs of people so low paid that they were not paying tax at all—will help to fund businesses such as the Heron corporation so that money can be forked out for the Ronsons of this world.
The idea is outrageous. It is beyond belief that that is the sort of business that the Government are supporting. They will raise taxes on the low-paid and say, "Yes, we want to get business going," but they give no directions and no special incentives to ensure that that money is put into real investment to create real jobs, now factories and new businesses. No—businesses will be able to do exactly what they like.

Mr. Tim Smith: I understand what the hon. Gentleman is saying, but the Red Book shows that the main factor was the decision not to increase business rates by more than the rate of inflation. Had that decision not been made, many businesses might have been pushed over the brink and jobs would have been lost. There is a balance between jobs and income tax. Which would people prefer to have—a job, with earnings on which they had to pay income tax, or no job?

Mr. Rooker: For my sins, I was the Opposition local government spokesman in 1987–88 when the Bill introducing the poll tax was in Committee. It took 200 hours. We were dealing with the business rate, the poll tax for business, and we shot the Government's arguments to pieces. The rates that business pays as an overall proportion are minuscule. I do not accept the argument that to help businesses we have to impose more taxes on the low-paid. That is what I cannot justify. We cannot consider one small provision of the Bill in isolation.
This provision will raise money on the backs of the low paid. What will it be used for? It will be used to reduce the tax burden on businesses. It is unfair to expect people whose earnings are 50 per cent. of the average to pay a bigger share than the average Member of Parliament or the Gerald Ronsons of this world for the purpose of reducing the taxes paid by businesses. Nobody is on lower pay than those who until now were below the tax threshold.
There must be no taxation by stealth. In this regard, the hon. Member for Beaconsfield was quite honest and open. As I look at the Strangers Gallery, to which I am not supposed to refer, I expect that very few people realise that what we are debating here is a big increase in taxation. What is being done is not being done by stealth, as in the past. The Committee has an opportunity to debate and to vote. When I found out in 1977 how the system worked I objected strongly. The roof came in on my hon. Friend the Member for Preston and myself for what we were doing. We were criticised by the press and by the leadership of our own party. But then the penny dropped as messages came in from pensioners' groups and trade union branches. It is much fairer to have things done in the open.
The tax burden on the poor is too great, and the Government are reverting to the previous process. Next year they will say that the rate of inflation this year was only 2.6 per cent. and that the forecast figure for the following year is 3.6 per cent.—nowhere near the level of the late 1970s. They think that if they get away with freezing allowances in one year, they will get away with it again. We are returning, step by step, to the old system of taxation by stealth.
This process must be opposed at every turn. In 1981 I came to the Chamber and opposed what was being done. I will act similarly today, and I will continue to do so. I do not take any pleasure in this. It takes time, and it is not


easy to explain to people outside. What members of the public do know, however, is that under the Budget taxes on the low-paid have increased.
I should like to make again a point that I made at the end of the Second Reading debate, when between the end of the Financial Secretary's winding-up speech and the Division I used the procedure of the House for a couple of minutes without upsetting everyone. In the course of a visit to Hereford and Worcester that day, I was asked what I was doing about the Rooker-Wise amendment. The person concerned, having been sucked back into the tax system many times, understood how it worked. He was so close to the margin that he knew he would be in the system for half of the year and out of it for the remainder.
I understood the mechanics. He realised that the Budget would result in freezing—that, having been sucked into the tax system, he would stay there. He regarded that as wholly unfair. I told him that, having been on the Opposition Benches for 14 years, I did not have much responsibility for the situation but that I would go to the House of Commons at the first opportunity and raise the point.

Mr. David Shaw: This is why the hon. Gentleman is in opposition.

Mr. Rooker: Far from it.
The point that I am making illustrates the unfairness of freezing allowances. By definition, as everyone knows, the burden on those with less than average earnings is disproportionately great. The Government will not increase income tax by a penny in the pound, because that would have the reverse effect. They do not want to attack the well-off. Tory Governments are bound to adopt this attitude. They talk about tax cuts, but they raise taxes. They talk about decreasing the tax burden, but they increase it—not only the overall burden on the economy but also the burden on the lowest-paid.
We shall nail the Government with this. It will not be easy, as was demonstrated in 1987 and 1992. It is not easy to get this message across, even during general election campaigns. The Conservatives always quote the 83 per cent. and 98 per cent. tax rates under the last Labour Government, as in the ebb and flow of politics they are quite entitled to do, but nobody ever paid at those rates. The average rate was far less. It was stupid of the last Labour Government to have high tax rates that were not actually used. They were warned that those rates would be used against them. At the other end of the scale, the system was such that tax revenue could be raised from the low paid.
Then the Tory party thought that it would be a good idea to introduce some truth into the tax system. The get-out clause was introduced by a former Chancellor, now Lord Lawson. At the back of the noble Lord's mind was the idea that a Tory Government needed a get-out. The Financial Secretary appears not to know what a get-out is. Perhaps I will have an opportunity to explain to him later.
Our original amendment on indexation was cut and dried. There would have been no get-out, but for an amendment tagged on at the end by a specific vote in the House. That is how the tax law was left at the time. Today we are at least guaranteed a debate, and some of us are

able to demonstrate that it is very unfair to put this extra tax burden on the low-paid. I invite the Financial Secretary to defend disproportionately great tax increases for those people: he cannot do it.

Mr. Dorrell: Members of all parties agree that the hon. Member for Birmingham, Perry Barr (Mr. Rooker) takes a serious interest in these issues. Indeed, the Committee is indebted to him for the part that he played in 1977 in ensuring that we could have this debate today. He has said that at that time everybody was against him. As he would be the first to acknowledge, our parliamentary system does not work in quite that way.
Far from everybody being against the hon. Gentleman, the Conservative party of the time, of which I think my hon. Friend the Member for Beaconsfield (Mr. Smith) is the only representative present today, supported him. The Rooker-Wise amendment that has been referred to is, in fact, the Rooker-Wise-Lawson amendment. The action of the hon. Gentleman and his hon. Friend the Member for Preston (Mrs. Wise) was supported by the Tory party.
We do not resile at all from the decision that the Government took then. We believe that, as the hon. Gentleman has said, changes in the real level of allowances should be the subject of debate in the Chamber. That is precisely why we are having this debate. Thus far, at least, I go along with the hon. Gentleman. I shall refer later to some of his arguments that I found to be substantially less convincing.
I should like to start with something that ought to be obvious. My hon. Friends the Members for Dover (Mr. Shaw) and Beaconsfield said that this element of the Bill is part of the total package that my right hon. Friend the Chancellor introduced to deal with the budget deficit. It is most remarkable that a constant in the debates we have had on this Bill is the assertion—made sometimes in almost accusatorial tones by the Opposition—that these are revenue-raising proposals, as though we had somehow stumbled over them almost in a fit of absence of mind. It is true that many of the changes made in the Bill are put together as a revenue-raising package.
The reason for that should not be surprising or unfamiliar to any hon. Member. It is that my right hon. Friend the Chancellor faced the need to do something about the Budget deficit. The Government take the budget deficit seriously. As these debates proceed, it is becoming abundantly clear that the Labour party does not share our commitment to a policy of seriously addressing the deficit. Over the past few weeks and months, we have seen several examples of that lack of firmness of purpose. The hon. Member for Dunfermline, East (Mr. Brown) has been anxious to rule out options which may help deal with the budget deficit. In January, on the radio, he said:
I'm not talking about raising income tax or national insurance or VAT.
That was said by the shadow Chancellor, who acknowledges that the budget deficit is too high but is anxious to rule out the three key tax weapons available to do something about it. In March, just before the Budget was delivered, he said on television.
I think at this particular point in time to raise income tax or national insurance or VAT would be a mistake.
So all three major sources of revenue available to the Government were explicitly ruled out twice, on the record, by the hon. Member for Dunfermline, East.
While the hon. Gentleman has been busy telling the world what he would not do to address the budget deficit, his hon. Friend the Member for Peckham (Ms. Harman) has been going round telling the world what she would do to make the budget deficit worse. She has been committing the Labour party to extra expenditure on training and, as my hon. Friend the Member for Beaconsfield said, to more generous capital allowances. So, on the one hand, the Labour party says that the budget deficit needs attention: on the other, it either forecloses options for doing anything about it and opposes all proposals that are put to the House, or it comes forward only with proposals which would make the deficit worse.
The first thing that we have to be clear about in addressing the question is that we face a budget deficit that demands attention. The Government have a package of proposals to address the deficit. All the arguments from the Opposition Benches come from a party which has been anxious to foreclose as many options as possible for dealing with the deficit.
The hon. Member for Newcastle upon Tyne, East (Mr. Brown) was generous enough, as were other hon. Members, to acknowledge the second element: that the proposals for changes to allowances and thresholds have to be seen in the context of other proposals for changes to the income tax system, particularly the introduction of the lower rate band. The interrelationship between changes to allowances and changes to the lower rate band is a key element of the Budget package.
What the Committee would not have gathered from the speeches so far in the debate, particularly from the Opposition Benches, is that, for the single person who is a basic rate taxpayer, it is not a coincidence that the effect of the freezing of the allowances and of the widening of the basic rate band is precisely the same: they net out. For the single person on basic rate tax the freezing of allowances costs him £22.50 this year; the widening of the lower rate band benefits him to the tune of £22.50 this year. There is a statistical equivalent.
The married couple basic rate payer is £12.50 a year worse off as a consequence of the changes. Taking particularly the single person basic rate taxpayer, he is in precisely the same position after the changes as he would have been if the indexation proposal of the hon. Member for Perry Barr had been allowed to run its course in respect of both the lower rate band and the basic rate band.
There are differences. All higher rate taxpayers are losers as a consequence of the changes because the effect of freezing allowances is to ensure that the benefit available from the changes to the higher rate taxpayer is exactly the same as to the basic rate taxpayer. The hon. Member for Perry Barr was right to say that those who are marginal payers within the lower rate are to a varying degree losers in absolute terms, although I would argue strongly that they are also gainers in the sense that the marginal rate of income tax which they are paying is lower than at any time since the Government came to power.
The changes that we are introducing in the package are part of the progress that we can make to introduce a wider lower rate band which will have important positive benefits in dealing with the poverty trap, the unemployment trap and the sharpening of incentives, which must be an important priority for those on lower incomes.

Mr. Graham: Does the Minister realise that, for 14 years, we have been told that, once the Conservative

Government got to grips with the economy, things would go well? For the past three years, we have been told that the end of the recession is round the corner. We have been told that by the Chancellor until he was blue in the face. The Minister is telling us that low wage earners will benefit. In God's honest truth, that is not the case. If we can prove that he is not right, will the Minister come back and reverse what he has said?

Mr. Darrell: The hon. Gentleman suggests that people on average earnings, or the majority of people, have not benefited from the logic of the changes which we have been introducing for the past 14 years. As I said in an intervention in the speech of the hon. Member for Perry Barr, that is not true. Those who are on half average earnings have benefited in their take-home pay from the economic record of the Government to the tune of £67.50 a week in real terms since 1979. In the period 1974–79, the same group saw their real take-home pay increase by just over £8 a week.
People on average earnings are more than £80 a week better off than they were in 1979. Their income grew in real terms over the five years of the Labour Government by just over £1 a week. So there was an increase of £80 a week under the Tories and £1 a week under Labour; that is the contrast that answers the point made by the hon. Member for Renfrew, West and Inverclyde (Mr. Graham).
I have said that we cannot consider the changes in allowances in isolation from the rest of the changes to the income tax system. Nor can we consider them in isolation from the other changes contained elsewhere in the Budget. I discussed that point with my hon. Friend the Member for Beaconsfield in an intervention based on the analysis of the Institute of Fiscal Studies. It took the Budget package as a whole and looked at the distributional effect of the increase in the tax burden which my right hon. Friend introduced in his Budget.
The institute—an independent organisation—concluded that the average loss as a percentage of net income was virtually the same right across the income scale, from the poorest 10 per cent. of households to the richest 10 per cent. All of them, to within a very narrow range of variance, contribute roughly 2.5 per cent. of their net income to the deficit reduction programme which my right hon. Friend introduced in his Budget.
Of course, if the Budget is addressing the deficit by means of revenue raising, there will be by definition an average loss in resources available to taxpayers. Those figures show that that loss is shared fairly across the income scale. We cannot consider it in isolation from other income tax changes, nor in isolation from other changes elsewhere in the Budget. Nor, most important of all, can we consider it in isolation from the history of the past 20 years. That is where the record of the Government bears very favourable comparison with the record of our predecessors.
The hon. Member for Perry Barr is entitled to mark himself out in regard to his responsibility for what happened to personal allowances under the Labour Government. The effect of his action on what happened during those years is extremely marked in the figures. The year in which he rebelled was the only year of the Labour Government's period of office in which personal allowances increased in real terms. Over their total period


of office, the single personal allowance fell in real terms by 21 per cent. In the period since 1979, it has risen by 25 per cent.

We will not accept any lectures from members of the Opposition Front Bench on the subject of the indexation of personal allowances; nor will we accept lectures from any member of the Labour party, even including the hon. Member for Perry Barr, on the subject of the living standards of people right across the income scale.

Mr. Graham: rose—

Mr. Dorrell: I said in answer to the previous intervention of the hon. Member for Renfrew, West and Inverclyde, who is encouraging me to give way to him again, that the effect of this Government's policies taken as a whole has been to deliver a substantial increase in real take-home pay and living standards right across the income scale, benefiting the average wage earner by £81 a week, at today's values, this year, and benefiting the group on which the hon. Member for Perry Barr was focusing by just over £67 a week.

Mr. Graham: Anyone who thinks that the 3 million unemployed, the pensioners and disabled people have benefited under this Government is living in cloud cuckoo land. I want to ask the Minister what the Government have done with the money that they got from oil. How did they fritter that away? Why should we expect a pensioner to pay VAT on fuel and power when we had billions of pounds' worth of oil in the north of Scotland and in other places? How did the Government absolutely squander that?

Mr. Dorrell: One of the things that we have done is to increase by more than 50 per cent. the amount of money spent on the national health service as a result of the improved economic performance. Since 1979, we have seen a substantial improvement in Britain's economic performance, and this has been delivered to the British people by improving real take-home pay and social services. That was the commitment that we gave in 1979, 1983, 1987 and again in 1992. We have been delivering it for 14 years, and we will go on delivering it.

Mr. Jim Cunningham: I could not believe my ears when the Chief Secretary to the Treasury said that over the last 14 years Britain's economic performance had improved. If that is the case, why are we talking about borrowing, and funding deficits? The Chief Secretary has fallen into the trap of believing his own rhetoric. Last week showed that the Government listen to themselves and nobody else, and live in a totally different world from the rest of Britain.
The tragedy of this Budget is that, once again, the burden has been put on those who can ill afford to pay. As the Chief Secretary said, we cannot look at allowances in isolation from the rest of the Chancellor's package. If we look at the burden imposed by the lack of action in relation to tax easement from the lower-paid, add to that such things as VAT, and then start to work out what inflation will be 12 months hence, we can see this tremendous burden unfold.
If I were the Chief Secretary to the Treasury, or any other member of the Government Front Bench, I would be

ashamed to be a member of a party that, after 14 years, has brought a great country like ours to such a state that we have to borrow tremendous sums of money and raise money to pay it back.
One or two have to be answered. Two or three times today, hon. Members have alluded to these, and once again we have to take them up. The Chief Secretary, for example, referrred to issues that he must talk about that have arisen over the last 20 years. If we go back 20 years, we are talking about the Heath Government.
Has the Chief Secretary forgotten, when talking about industrial relations, the three-day week and the fact that prices rose considerably, particularly petroleum prices? The members of the Organisation of Petroleum Exporting Countries decided to put prices up, that led to inflation, and the 1974 Labour Government had to pick up the pieces. Let us remember a few facts when we talk about the improvement in Britain's economic position and start to compare records. I do not think that the Government have anything to be proud of.
The Chief Secretary talks about packages, and the Budget is a package, but nothing has been said during the debates or in anything that I have heard over the last few weeks about the balance of payments deficit. I wonder how much planning has gone into that. I wonder what taxes are in the pipeline for the future—or will it be higher interest rates, or perhaps a combination of the two?
Those are the things that the Government should start to think about, because we certainly do not want the stop-go situation again. The Government said 14 years ago that they would bring that sort of thing to an end. They were also elected on the slogan of lower taxation, but in reality we have had sneaky tax, hidden tax, and now taxation has been expanded through VAT. So, if they have not got on top of the deficit next year, will we see further expansion of VAT—for example, to newspapers, children's clothing, and so on?
Again, nothing has been done to help old-age pensioners or one-parent families. Instead, the burden on them has been increased.
That is a sorry indictment of this Government. They may try to find excuses, but the answer is that they have run out of alibis for their stewardship of this country over the last 14 years. The Chief Secretary must be very careful when he talks about improvements in Britain's economic performance, because the ordinary people in the street rejected his Government's policies last week. They are paying a terrible price for their tremendous efforts to put this country on its feet.
I welcome some of the initiatives to help businesses—I do not think that anybody who is concerned about unemployment could fail to do so—but we must ensure that small businesses get the benefits intended for them, and that sums of money in the form of grants are spent wisely.
This is a sorry Budget, a tragic Budget. The former Sir Geoffrey Howe's Budget in 1981 was supposed to set Britain in a new direction, on a new economic course, yet in 1993, we are looking at the same issues as we looked at in 1981. Those in the Government who call themselves accountants play ducks and drakes with figures, but the people of the country can do their homework; they can see the price that they have to pay for the follies of this Government. The Government may defend the highest 5 per cent., but we are very proud of the fact that we defend the lower-paid and people in the middle-income bracket.
The Government's recommendation must, I submit, be rejected tonight.

Dr. Berry: I had not intended to speak in this debate, but I want to respond briefly to a number of comments that have been made.
The proposal before us today is effectively to increase the tax burden on lower income groups, and we have been given some extraordinary reasons why this is appropriate. One extraordinary argument was that the tax burden had to be increased and it could not possibly be increased for those on higher incomes, who have benefited substantially from previous tax cuts.
Even good old Professor Laffer has been invoked, as if it is generally accepted that a little graph that the Professor scribbled on the back of a serviette in a restaurant in the United States a long time ago is somehow gospel and can be used to talk sensibly about tax policy.
I have to say that it cannot. The point is a very simple one. The argument rests on the proposition that, if we reduce people's taxes, they will work harder, so their incomes will he higher, and therefore they will pay more taxes. Ministers have given no evidence whatsoever that if, as has happened, the direct tax burden on higher income groups is reduced, they will work more overtime and consequently pay more income tax. The reason that they have not offered that evidence is that no such evidence exists. Exhaustive studies, not least by Professor C. V. Brown, have shown that income tax cuts on high income groups do not encourage greater efforts to pay even more income tax. It really is nonsense.
The Minister said that the budget deficit has to be corrected, but he did not recognise that it is so high precisely because of the Government's economic performance. I repeat my earlier point: that the Government have the worst record on economic growth of any post-war Government—1.9 per cent. per annum. The Government responded by saying, "No, you misunderstand. Living standards have improved".
Of course they have. If the Government had achieved the remarkable feat of negative growth, no doubt average living standards would have fallen, but even the present Government have managed to secure some economic growth over the past 14 years. It is the natural order of things. However, they have managed to reduce that rate of growth.
Living standards have improved for some people, because they have borrowed extensively in the financial regime created in the late 1980s. I advise the Government to worry as much, if not more, about the scale of private sector debt as they do about public sector debt. If they honestly believe that our economy is capable of sustaining increased living standards in the way that they have suggested, they are deluding themselves.
The clause is part of a tax package that in one sense is perfectly consistent with everything the Government have done. They have increased the tax burden over the past 14 years. It may be a useful device to tell people that they have not, but it is dishonest.
The Government have shifted the tax burden from the higher income groups to the lower. Not one person who has seriously examined the statistics would attempt to deny that charge. It is a charge, an accusation and a criticism. How can anyone conceivably support a tax

regime that, year by year, is being geared to ensure that those on higher incomes get more and those on lower incomes get less?
Apparently, in order to encourage those on higher incomes to work harder, they have to pay less tax. Those on lower incomes are encouraged to work harder by paying more tax. That is the nonsense of the Government's position and I hope that the amendment will be supported in the Lobby.

Mr. Thomas Graham: The Minister told us about the regime that will operate, but he made no apologies for the fact that the wealthy people in Britain will become more wealthy as a result. The rich are getting richer and the poor are getting poorer. Quite clearly, the Treasury had an opportunity to redress the balance and tax the rich people in Britain substantially more and reverse the trend that the Government have been applying for a long time.
I was amazed to hear the Minister's glib reply to me about how the Government frittered away billions of pounds of North sea oil revenue. I wonder what happened to North sea gas, as the gas from the Government is quite stinking. We have the sickest geriatric Government ever. They are so old-fashioned that they are not just getting grey hairs; they are dying on their feet.
6.45 pm
Last week, the English and the Welsh consigned them to the bin and left them with just one council. That is no wonder, because they are utterly mismanaging the economy. There is no way they will get away with that anywhere in Great Britain. I would love the folk of Scotland to have an opportunity to register their protests, which would swing the boot at the Government. Perhaps the Government would then take a responsible attitude, instead of putting VAT on fuel and power, and at least folk would be able to live in a wee bit of comfort.
Will the Treasury Minister think about one issue that I have looked at recently? One of my constituents wrote to me and said, "Tommy, do you remember the hated poll tax, when the Minister came up with a rebate to get us out of the hole that we were in?" The people of Britain went bananas, they wanted rid of the poll tax.
Now the Government are committed to the council tax, and they have had to decide how to cover it. They increased VAT to 17.5 per cent. to provide an acceptable form of local government taxation because of the Government's absolutely massive blunder on local council finance.
The Treasury is producing these ways of balancing the revenue because they clearly got it wrong. They increased VAT to 17.5 per cent. VAT when the poll tax was abolished. Now the Minister expects elderly, disabled and unemployed people to pay 17.5 per cent. more for fuel and power.
I shall be glad to hear the Minister's reply in summing up. I find it amazing that VAT has been increased from 15 per cent. to 17.5 per cent. to cover the council tax. Now they expect 9 million elderly folk, 3 million unemployed folk and all the sick and disabled folk to pay extra. It is absolutely incredible. I am delighted to give way to the Minister.

Mr. Dorrell: I have summed up. I have certainly said all I have to say on the subject, but I should like to correct one wrong figure I used in my speech and in an intervention in


that of the hon. Member for Perry Barr—and I apologise to him for that. I flattered the record both of the Government and our predecessors in terms of the effect on the real take-home pay of those on half average earnings. The figures should be that, between 1974 and 1979, those people saw their real take-home pay rise by just over £3 a week, and since 1979 by just over £25 a week.

Mr. Graham: When the Labour Government were in power, some folk in the House of Commons were still in primary school. I do not need a history lesson from any Minister. I remember the days when I started work. There was a Labour Government and I was employed in an apprenticeship. When I finished my apprenticeship, I went to work. I had a good job with good pay and could afford to go on holidays and buy my clothes: I definitely did not need to go to jumble sales and bag sales. That is what the Government have inflicted on the low-paid, the unemployed and the disabled. The Minister should come with me and see the result of his economic plan.

Mr. Brian H. Donohoe: Will my hon. Friend tell me how many charity shops there are in his constituency? If it is anything like mine, he will find that in the past five years the only expanding industry is charity shops. What is the situation in his constituency?

Mr. Graham: I am grateful for my hon. Friend's intervention. I can see the Minister's face getting whiter, but it is not as pale as some pensioners will be in the winter, when they cannot afford heating because of the Government's VAT policy.
My hon. Friend is right. In my area, there has been a tremendous boom in charity shops. The Government have cut charity funding so much that they have had to open shops while folk have a wee bit of money. It is not the wealthy people who make contributions to charity; it is folk like mothers, aunties, brothers and sisters who do not have a lot of money, but will not go by the tin can.
I make this point to the Minister, and I will make him an offer. I would love the whole Cabinet to come with me on those visits. It would probably help them to make a bit more sense of their taxation regime. I would love them to come to the jumble sales, the boot sales and the charity shops. I would like to take them on a Friday and Saturday night to some of the supermarkets, where they will see the elderly women scurrying about to try and buy goods which are near their sell-by date at half-price. They will see something that I never thought I would see again—the queues for the second-hand clothes and all the women scrabbling for something that costs 50p. That is what the Government taxation system has created for our folk; it has got them begging.
My offer is a sincere one. I notice that the local Conservatives in my constituency have jumble sales, and do very well. They occasionally go along and buy the boots that the lords have thrown in—or even Tory Members have thrown in. We do very well; we may buy a pair of boots for 50p that will give us a couple of weeks more wear. Then they announce in the local paper that the local Conservative fete made a few hundred pounds this week.
Then, in the next couple of weeks, we notice that they are asking local Conservative Members if they will donate old clothes—there is a great need for old clothes in my constituency—so that they can sell them to make a few

bob in order to return a regime which imposes a taxation system on the low-paid and which cripples and kills the elderly behind their doors in winter.
Already the price of fuel—coal, gas and oil—is so high that pensioners are dying behind their doors. This is absolutely genuine—I am not conjuring up a fairy tale. I can see from all hon. Members' faces that they know I am telling the truth. The taxation system has been wrong for the last 14 years. For 14 years, the Government have plundered this country's resources; they have squandered the money raised by privatisation and thrown it into the bin—the dustbin of unemployment. They have wrecked the economy by squandering North sea oil and gas.
I only wish that we could have a general election tomorrow. I am sure that a general election tomorrow would not just produce a change of Government, but would enable the elderly folk, the disabled and the unemployed to walk with pride again. They could look forward to a future with jobs, to where the grass grows green and is not made dry and arid by this barren Government. They are a hopeless Government; they have had their day. Let us give them a real knuckleduster. If they are so confident of their tax regime, let us have a general election now.

Mr. Nicholas Brown: During the excellent speech of my hon. Friend the Member for Renfrew, West and Inverclyde (Mr. Graham), I distinctly heard Conservative Members shout, "Tommy for Chancellor." I know that they are desperate to get rid of the present incumbent; nevertheless, I urge my hon. Friend not to cross the Floor to take over the job.
I also understand my hon. Friend's desire to take Conservative Members to charity shops, but he would probably get more for their suits than he would for their Government. I believe that the consumers in his constituency are a fairly discerning bunch: while they might purchase, at a knockdown price, suits that Conservative Members can clearly afford, I doubt that they would purchase a Government whom the country clearly cannot afford.
Let us not obscure the main point of today's debate —that the Government hope to raise an extra £2.7 billion in the financial year 1995–96. That is an awful lot of money. Of course the Government are trying to obscure the way in which it will be done; of course their proposals are not set out bluntly in the form of direct tax increases, as a number of my hon. Friends have pointed out. None the less, that will be the effect of the freezing of these allowances.
Interestingly enough—as my hon. Friend the Member for Kingswood (Dr. Berry) pointed out—the recession is affecting people with savings and people with private-sector debt in a similar way. Those with savings are trying to hold on to them, because they are frightened of spending and uncertain about their future. Labour believes that the only way to weather the present crisis is to deal with unemployment first: it is the core issue, and the Government should concentrate on it first.
Of course the public sector borrowing requirement, and indeed the revenues available to Government, are affected by growth rates. Of course, if the Government were able to restore economic growth to the point at which it should now be, more revenue would be available and they would be able to reduce the deficit. That, however, is not the history of recent years: we have experienced 10 successive


quarters of negative economic growth. That affects not only the PSBR, but the tax burden required to service or even reduce it.
I agreed with the Financial Secretary when he cited the work of the Institute for Fiscal Studies about the distributional effect of the whole of the Chancellor's Budget—although, of course, that same distributional effect does not apply just to the details of the allowances that we are discussing.
However, although what the IFS said about the distributional effect of the totality of this year's measures was correct, that does not apply to the whole range of tax changes that the Government have made since 1979. The main change has been the substantial shift from direct to indirect taxation, particularly through VAT increases: that has had a regressive effect on the poor.
The Financial Secretary's favourite line seems to be that real take-home pay has increased throughout the Conservatives' period of office. They are proud of that. The hon. Gentleman, however, is talking about—I believe —58 per cent. of our fellow citizens, who are in work. What about the other 42 per cent.—the unemployed, and pensioners? What has happened to their real earnings since 1979? They have not been as well off under the measures promoted by the present Government.
If we take the lower rate band alongside the freezing of allowances, it is clear that those earning below median earnings will be adversely affected by the Government's proposals—not the very poor; not those who do not pay income tax, and therefore are not affected by the positioning of allowances in lower-rate bands; but those on low earnings. As if that were not enough, I believe that there is widespread public resentment about the way in which the Government have gone about raising the taxes they need in order to deal with the current deficit.
Before the election, we were told that the Conservative party was committed to reducing taxation; then, in the Budget, we are told that VAT must be extended to domestic electricity and to charities. That is probably the most regressive single VAT adjustment that could have been made. We are told that employees' national insurance must be increased, not just for those earning above average incomes—the Labour party's proposal before the general election—but for everyone. That was after the Conservative party promised at the election that they would do no such thing. Moreover, we now have the adjustment of allowances proposed in the Bill.
What is done is regressive. It is a substantial increase in tax—£2.7 billion. I do not think that the Financial Secretary has made the case against the amendment, so I urge hon. Members to vote for the amendment standing in my name.

Question put, That the amendment be made:—

The Committee divided: Ayes 236, Noes 277.

Division No. 266]
[7 pm


AYES


Abbott, Ms Diane
Austin-Walker, John


Adams, Mrs Irene
Barnes, Harry


Ainger, Nick
Barron, Kevin


Ainsworth, Robert (Cov'try NE)
Battle, John


Allen, Graham
Bayley, Hugh


Alton, David
Beith, Rt Hon A. J.


Anderson, Donald (Swansea E)
Bell, Stuart


Anderson, Ms Janet (Ros'dale)
Benn, Rt Hon Tony


Armstrong, Hilary
Benton, Joe


Ashdown, Rt Hon Paddy
Berry, Dr. Roger


Ashton, Joe
Betts, Clive





Blair, Tony
Hill. Keith (Streatham)


Blunkett, David
Hinchliffe, David


Boateng, Paul
Hoey, Kate


Boyce, Jimmy
Hogg, Norman (Cumbernauld)


Boyes, Roland
Hood, Jimmy


Bradley, Keith
Hoon, Geoffrey


Bray, Dr Jeremy
Howarth, George (Knowsley N)


Brown, N.(N'c'tle upon Tyne E)
Howells, Dr. Kim (Pontypridd)


Bruce, Malcolm (Gordon)

Hoyle, Doug


Burden, Richard
Hughes, Kevin (Doncaster N)


Byers, Stephen
Hughes, Simon (Southwark)


Callaghan, Jim
Hutton, John


Campbell, Mrs Anne (C'bridge)
Illsley, Eric


Campbell, Menzies (Fife NE)
Jackson, Glenda (H'stead)


Campbell, Ronnie (Blyth V)
Jackson, Helen (Shef'ld, H)


Campbell-Savours, D. N.
Jamieson, David


Canavan, Dennis
Janner, Greville


Cann, Jamie
Jones, Ieuan Wyn (Ynys Môn)



Carlile, Alexander (Montgomry)
Jones, Jon Owen (Cardiff C)


Chisholm, Malcolm
Jones, Lynne (B'ham S O)


Clark, Dr David (South Shields)
Jones, Martyn (Clwyd, SW)


Clarke, Eric (Midlothian)
Jones, Nigel (Cheltenham)


Clarke, Tom (Monklands W)
Jowell, Tessa


Clelland. David
Kaufman, Rt Hon Gerald


Clwyd, Mrs Ann
Keen, Alan


Cohen, Harry
Kennedy, Charles (Ross, C&S)


Cook, Frank (Stockton N)
Khabra, Piara S.


Corbett, Robin
Kinnock, Rt Hon Neil (Islwyn)


Corston, Ms Jean
Leighton, Ron


Cousins, Jim
Lestor, Joan (Eccles)


Cryer, Bob
Lewis, Terry


Cunningham, Jim (Covy SE)
Livingstone, Ken


Cunningham, Rt Hon Dr John
Lloyd, Tony (Stretford)


Dafis, Cynog
Llwyd, Elfyn


Darling, Alistair
Lynne, Ms Liz


Davidson, Ian
McAllion, John


Davies, Bryan (Oldham C'tral)
McAvoy, Thomas


Davies, Rt Hon Denzil (Llanelli)
McCartney, Ian


Denham, John
Macdonald, Calum


Dewar, Donald
McFall, John


Dixon, Don
McKelvey, William


Dobson, Frank
Mackinlay, Andrew


Donohoe, Brian H.
McLeish, Henry


Dowd, Jim
Maclennan, Robert


Dunwoody, Mrs Gwyneth
Madden, Max


Eagle, Ms Angela
Mahon, Alice


Eastham, Ken
Mandelson, Peter


Enright, Derek
Marek, Dr John


Etherington, Bill
Marshall, David (Shettleston)


Ewing, Mrs Margaret
Marshall, Jim (Leicester, S)


Fatchett, Derek
Martin, Michael J.(Springburn)


Field, Frank (Birkenhead)
Martlew, Eric


Fisher, Mark
Maxton, John


Flynn, Paul
Meacher, Michael


Foster, Rt Hon Derek
Michael, Alun


Foster, Don (Bath)
Michie, Bill (Sheffield Heeley)


Foulkes, George
Michie, Mrs Ray (Argyll Bute)


Fraser, John
Milburn, Alan


Fyfe, Maria
Miller, Andrew


Gapes, Mike
Mitchell, Austin (Gt Grimsby)


Garrett, John
Morgan, Rhodri


George, Bruce
Morley, Elliot


Gerrard, Neil
Morris, Rt Hon A.(Wy'nshawe)


Gilbert, Rt Hon Dr John
Morris, Estelle (B'ham Yardley)


Godsiff, Roger
Morris, Rt Hon J.(Aberavon)


Golding, Mrs Llin
Mowlam, Marjorie


Gordon, Mildred
Mudie, George


Gould, Bryan
Mullin, Chris


Graham, Thomas
Murphy, Paul


Grant, Bernie (Tottenham)
Oakes, Rt Hon Gordon


Griffiths, Nigel (Edinburgh S)
O'Brien, Michael (N W'kshire)


Griffiths, Win (Bridgend)
Olner, William


Grocott, Bruce
O'Neill, Martin


Gunnell, John
Parry, Robert


Hall, Mike
Pendry, Tom


Hanson, David
Pickthall, Colin


Harman, Ms Harriet
Pike, Peter L.


Harvey, Nick
Pope, Greg


Henderson, Doug
Powell, Ray (Ogmore)


Heppell, John
Prentice, Ms Bridget (Lew'm E)






Prentice, Gordon (Pendle)
Steel, Rt Hon Sir David


Prescott, John
Steinberg, Gerry


Primarolo, Dawn
Strang, Dr. Gavin


Purchase, Ken
Taylor, Mrs Ann (Dewsbury)


Quin, Ms Joyce
Taylor, Matthew (Truro)


Raynsford, Nick
Tipping, Paddy


Reid, Dr John
Turner, Dennis


Rendel, David
Walker, Rt Hon Sir Harold


Robinson, Geoffrey (Co'try NW)
Wallace, James


Roche, Mrs. Barbara
Walley, Joan



Rogers, Allan
Warden, Gareth (Gower)


Rooker, Jeff
Wareing, Robert N


Rooney, Terry
Watson, Mike


Rowlands, Ted
Welsh, Andrew


Ruddock, Joan
Wicks, Malcolm


Salmond, Alex
Wigley, Dafydd


Sedgemore, Brian
Williams, Rt Hon Alan (Sw'n W)


Sheerman, Barry
Williams, Alan W (Carmarthen)


Sheldon, Rt Hon Robert
Wilson, Brian


Shore, Rt Hon Peter
Winnick, David


Short, Clare
Wise, Audrey


Simpson, Alan
Worthington, Tony


Skinner, Dennis
Wray, Jimmy


Smith, Andrew (Oxford E)
Wright, Dr Tony


Smith, C.(Isl'ton S & F'sbury)
Young, David (Bolton SE)


Smith, Llew (Blaenau Gwent)



Soley, Clive
Tellers for the Ayes:


Spearing, Nigel
Mr. Gordon McMaster and Mr. Alan Meale.


Spellar, John





NOES


Ainsworth, Peter (East Surrey)
Clappison, James


Aitken, Jonathan
Clark, Dr Michael (Rochford)


Alison, Rt Hon Michael (Selby)
Clifton-Brown, Geoffrey


Allason, Rupert (Torbay)
Coe, Sebastian


Amess, David
Colvin, Michael


Ancram, Michael
Congdon, David


Arbuthnot, James
Conway, Derek


Arnold, Jacques (Gravesham)
Coombs, Anthony (Wyre For'st)


Arnold, Sir Thomas (Hazel Grv)
Coombs, Simon (Swindon)


Ashby, David
Cope, Rt Hon Sir John


Aspinwall, Jack
Couchman, James


Atkinson, Peter (Hexham)
Cran, James


Baker, Rt Hon K.(Mole Valley)
Currie, Mrs Edwina (S D'by'ire)


Baker, Nicholas (Dorset North)
Curry, David (Skipton & Ripon)


Baldry, Tony
Davies, Quentin (Stamford)


Banks, Matthew (Southport)
Davis, David (Boothferry)


Bates, Michael
Day, Stephen


Batiste, Spencer
Deva, Nirj Joseph


Bellingham, Henry
Devlin, Tim


Bendall, Vivian
Dickens, Geoffrey


Beresford, Sir Paul
Dicks, Terry


Biffen, Rt Hon John
Dorrell, Stephen


Blackburn, Dr John G.
Dover, Den


Body, Sir Richard
Duncan, Alan


Bonsor, Sir Nicholas
Duncan-Smith, Iain


Booth, Hartley
Dunn, Bob


Boswell, Tim
Dykes, Hugh


Bottomley, Peter (Eltham)
Eggar, Tim


Bottomley, Rt Hon Virginia
Elletson, Harold


Bowis, John
Emery, Rt Hon Sir Peter


Boyson, Rt Hon Sir Rhodes
Evans, David (Welwyn Hatfield)


Brandreth, Gyles
Evans, Jonathan (Brecon)


Brazier, Julian
Evans, Nigel (Ribble Valley)


Bright, Graham
Evans, Roger (Monmouth)


Brooke, Rt Hon Peter
Evennett, David


Brown, M.(Brigg & Cl'thorpes)
Faber, David


Browning, Mrs. Angela
Fabricant, Michael


Bruce, Ian (S Dorset)
Field, Barry (Isle of Wight)


Budgen, Nicholas
Fishburn, Dudley


Burns, Simon
Forman, Nigel


Burt, Alistair
Forth, Eric


Butler, Peter
Fowler, Rt Hon Sir Norman


Carlisle, John (Luton North)
Fox, Dr Liam (Woodspring)


Carrington, Matthew
Fox, Sir Marcus (Shipley)


Carttiss, Michael
Freeman, Roger


Cash, William
French, Douglas


Channon, Rt Hon Paul
Fry, Peter


Chapman, Sydney
Gale, Roger


Churchill, Mr
Gardiner, Sir George





Garel-Jones, Rt Hon Tristan
Merchant, Piers


Garnier, Edward
Milligan, Stephen


Gill, Christopher
Moate, Sir Roger


Gillan, Cheryl
Moss, Malcolm


Goodlad, Rt Hon Alastair
Needham, Richard


Goodson-Wickes, Dr Charles
Nelson, Anthony


Gorman, Mrs Teresa
Neubert, Sir Michael


Gorst, John
Newton, Rt Hon Tony


Greenway, Harry (Ealing N)
Nicholls, Patrick


Greenway, John (Ryedale)
Nicholson, David (Taunton)


Griffiths, Peter (Portsmouth, N)
Nicholson, Emma (Devon West)


Grylls, Sir Michael
Norris, Steve


Gummer, Rt Hon John Selwyn
Onslow, Rt Hon Sir Cranley


Hague, William
Oppenheim, Phillip


Hamilton, Rt Hon Archie (Epsom)
Ottaway, Richard


Hannam, Sir John
Page, Richard


Hargreaves, Andrew
Paice, James


Harris, David
Patnick, Irvine


Haselhurst, Alan
Patten, Rt Hon John


Hawkins, Nick
Pattie, Rt Hon Sir Geoffrey


Hawksley, Warren
Pawsey, James


Hayes, Jerry
Peacock, Mrs Elizabeth


Heald, Oliver
Pickles, Eric


Heath, Rt Hon Sir Edward
Porter, David (Waveney)


Heathcoat-Amory, David
Portillo, Rt Hon Michael


Hendry, Charles
Powell, William (Corby)


Hicks, Robert
Redwood, John


Higgins, Rt Hon Sir Terence L.
Renton, Rt Hon Tim


Hill, James (Southampton Test)
Richards, Rod


Hogg, Rt Hon Douglas (G'tham)
Riddick, Graham


Horam, John
Rifkind, Rt Hon. Malcolm


Hordern, Rt Hon Sir Peter
Robathan, Andrew


Howard, Rt Hon Michael
Roberts, Rt Hon Sir Wyn


Howarth, Alan (Strat'rd-on-A)
Robinson, Mark (Somerton)


Howell, Rt Hon David (G'dford)
Roe, Mrs Marion (Broxbourne)


Hughes Robert G.(Harrow W)
Rowe, Andrew (Mid Kent)


Hunter, Andrew
Rumbold, Rt Hon Dame Angela


Jack, Michael
Ryder, Rt Hon Richard


Jackson, Robert (Wantage)
Sackville, Tom


Jenkin, Bernard
Sainsbury, Rt Hon Tim


Jessel, Toby
Scott, Rt Hon Nicholas


Johnson Smith, Sir Geoffrey
Shaw, David (Dover)


Jones, Gwilym (Cardiff N)
Shaw, Sir Giles (Pudsey)


Jones, Robert B.(W Hertfdshr)
Shephard, Rt Hon Gillian


Jopling, Rt Hon Michael
Shepherd, Colin (Hereford)


Kellett-Bowman, Dame Elaine
Shepherd, Richard (Aldridge)


Key, Robert
Shersby, Michael


King, Rt Hon Tom
Sims, Roger


Knapman, Roger
Skeet, Sir Trevor


Knight, Mrs Angela (Erewash)
Smith, Tim (Beaconsfield)


Knight, Greg (Derby N)
Soames, Nicholas



Knight, Dame Jill (Bir'm E'st'n)
Spicer, Sir James (W Dorset)


Knox, David
Spicer, Michael (S Worcs)


Lait, Mrs Jacqui
Spink, Dr Robert


Legg, Barry
Spring, Richard


Lennox-Boyd, Mark
Sproat, Iain


Lester, Jim (Broxtowe)
Squire, Robin (Hornchurch)


Lidington, David
Stanley, Rt Hon Sir John


Lightbown, David
Steen, Anthony


Lilley, Rt Hon Peter
Stephen, Michael


Lloyd, Peter (Fareham)
Stern, Michael


Lord, Michael
Streeter, Gary


Luff, Peter
Sumberg, David


Lyell, Rt Hon Sir Nicholas
Sykes, John


MacGregor, Rt Hon John
Tapsell, Sir Peter


MacKay, Andrew
Taylor, Ian (Esher)


Maclean, David
Taylor, John M.(Solihull)


McLoughlin, Patrick
Taylor, Sir Teddy (Southend, E)


McNair-Wilson, Sir Patrick
Temple-Morris, Peter


Madel, David
Thomason, Roy


Maitland, Lady Olga
Thornton, Sir Malcolm


Malone, Gerald

Thurnham, Peter


Mans, Keith
Townsend, Cyril D.(Bexl'yh'th)


Marland, Paul
Trend, Michael


Marlow, Tony
Trotter, Neville


Marshall, John (Hendon S)
Twinn, Dr Ian


Marshall, Sir Michael (Arundel)
Vaughan, Sir Gerard


Martin, David (Portsmouth S)
Viggers, Peter


Mawhinney, Dr Brian
Waldegrave, Rt Hon William


Mayhew, Rt Hon Sir Patrick
Walden, George






Waller, Gary
Wilshire, David


Wardle, Charles (Bexhill)
Winterton, Mrs Ann (Congleton)


Waterson, Nigel
Winterton, Nicholas (Macc'f'ld)


Watts, John
Wolfson, Mark


Wells, Bowen
Wood, Timothy


Wheeler, Rt Hon Sir John
Yeo, Tim


Whitney, Ray
Young, Sir George (Acton)


Whittingdale, John



Widdecombe, Ann
Tellers for the Noes:


Wiggin, Sir Jerry
Mr. Timothy Kirkhope and Mr. Andrew Mitchell.


Wilkinson, John



Willetts, David

Question accordingly negatived.

Clause 52 ordered to stand part of the Bill.

Clause 67

DONATIONS FROM COMPANIES AND INDIVIDUALS

Ms Harriet Harman: I beg to move amendment No. 46, in page 46, line 14, leave out '£250' and insert ' £200'.

The Temporary Chairman (Mr. John McWilliam): With this, it will be convenient also to discuss amendment No. 47, in page 46, line 17, leave out '£250' and insert '£200'.

Ms Harman: We have chosen the question of the tax treatment of charities for this debate for three reasons. First, the demands on charities are growing. Secondly, donations to charities are falling. Thirdly, the effect of the tax changes in the Budget will be that the Government themselves take more money in tax away from charities.
The demands on charities are growing, first, because of the cuts in social services, which mean that more people are having to turn to charities for services previously provided by local authorities and the health service, and, secondly, because of the growth in unemployment and the growth in debt. There are also demographic reasons—in particular, the growing number of elderly people.
There is a pattern to the development of charitable services which shows that where the welfare state is being cut back and where it is failing to meet the growing demand resulting from demographic trends, including the growing number of elderly people, charities are increasingly expected to step in and provide the services that I think in general most people would agree should be a basic part of the welfare state.
7.15 pm
We support the work of charities and think that they are vital. That is why we have tabled amendments to this clause for debate. But what we do not think—and the charities are absolutely in agreement with us on this—is that the charities should replace the welfare state and take up basic services.
The role of the charities is very specific. I should like to give two examples of a particular role that they can play. In my constituency a club developed to provide day centre services for black elderly people. That was pioneering work. It was about developing a new way of providing services. It was a sort of gadfly role of the charities to show the social services that there was a different way in which they could provide such services.
There is also, for example, the work in relation to health services of organisations such as the Family Planning Association, where there has clearly been a need for services that have not been sufficiently provided by the mainstream health service.
So the demands on charities are growing, but increasingly the Government expect charities to step in and provide where the welfare state is retreating.

Sir Jim Spicer: May I pursue the hon. Lady's train of thought? Does she feel that, for example, the Macmillan nursing service and the hospice service—which we all know are a growth area, where so much is being poured in, because people want to do this work—should now be taken over by the state and administered by the state, or does she believe that they should go on? In Dorset we have just raised £3.5 million for our own hospice. That was a community effort; people wanted to do it on their own. Surely the hon. Lady is not suggesting that that should be taken over by the state.

Ms Harman: I think that the role that the hospice movement played was to show the national health service that there was a whole area of unmet need. The charities stepped in to meet that need. Increasingly, the demand has been that hospices, which are a vital service, should not simply be left to charities, but that the national health service should recognise that it has an important role in the care of the dying. That does not mean that the charities do not then have a role in relation to the terminally ill, because what they have done is provide services for the terminally ill at home; they have then moved their pioneering work into another area.
It seems to us that that is what the role of the charities should be—showing the way, developing new services, seeing what works. Then the social services and the national health service should learn from the work of the charities and move in. That is a very important role that the Macmillan nurses, the Crossroads care attendance scheme and the hospices, for example, have played.
If one talks to organisations such as the Crossroads care attendance scheme, they say "We've shown the need for these services. We have shown how they should be provided, but don't leave it to us to try to meet all this unmet need on a charitable basis."
At the same time as there is a growing demand for services, a demand that the social services and the health service are failing to meet, we have seen donations to charities falling, because of the recession. Because we are concerned about the work of charities, I was interested to hear the Chancellor say in his Budget statement on 16 March:
Since 1979, the Government have done an enormous amount to help charities … I now have two further changes to propose.
He announced proposals for increased tax relief on gift aid and payroll giving. He then said:
Taken together, they will boost tax relief on donations to charities by some £30 million in a full year."—[Official Report, 16 March 1993; Vol. 221, c. 192.]
Those of us who were listening carefully to hear about the new measures for charities took that to mean that there would be an overall increase from the Treasury in assistance to charities. I am sure that my hon. Friends took it to mean that there would be increased assistance for charities.
I therefore looked in detail at the figures in the Red Book and at the figures in Treasury press releases. I also asked further written questions. When I received the answers, I was horrified to discover that there would not be an increase in tax assistance to charities as a result of the


Budget. Quite the opposite is the case. The effect of the Budget proposals on charities will be to take money away from them.
I hope that the Paymaster General will admit that the impression that the Chancellor clearly intended to create —that there was extra help for charities in the Budget—was wholly misleading. There is no extra help for charities in the Budget. In fact, the Government will take more money from charities to help them to fill the growing hole in public finances. That is the first point that I look to the Paymaster General to answer. I hope that he will admit that the tax changes in the Budget, taken together, take more money from charities than they give back.
On the one hand, charities will gain from payroll giving and from gift aid. That is on the plus side of the charities' balance sheet under the Budget. On the minus side are VAT on fuel bills for charities and the reduction in the tax credits on dividends which are affected by the changes in advance corporation tax. We need to consider the effects of the changes over a period of three years, which is the best way to consider the matter. Whichever set of years we take, we find that charities will lose more than they gain. I am not trying to do some numerical trick here. It is fair to consider the effects over three years because the Government will phase in the ACT changes and the changes in VAT.
On the Government's own estimates—I ask the Paymaster General to confirm the figures—the charities will gain £83 million over the next three years as a result of the changes in payroll giving and in gift aid. That is the plus side on the charities' balance sheet under the Budget. On the minus side, on the Government's estimate, VAT on fuel will cost charities £60 million over the next three years. I am grateful for an answer to a parliamentary question which said that, in the first year, VAT will be £10 million and that in the second year it will be £25 million. I presume that it will be £25 million in the following year as well.
On the minus side of the charities' balance sheet is the tax credit on dividends and the effect of the changes in advance corporation tax. According to the Government's own estimates—again, I am grateful for an answer to a parliamentary question which arrived on 11 May—the loss to charities as a result of the ACT changes over the next three years will be £45 million. Over the next three years, the Budget will give charities £83 million, but over the same period it will take away £105 million.
The Paymaster General should apologise to the House for the misleading impression, which the Chancellor clearly intended to create, that the Budget would help charities. The charities will lose on the Government's own figures. The charities believe that they will lost out by more than £22 million in the Government's figures. The charities estimate that they are likely to lose out by more than £62 million as a result of the Budget. They believe that their losses as a result of the changes in advance corporation tax will be more than the £45 million over the next three years in the Government's estimates.
I know that the Paymaster General had a meeting with the Wellcome Trust about the issue. The trust has told me that it told him last week that it would lose £10 million as a result of the ACT changes because of the effect on its dividend income. The trust said that that would be 200 jobs gone in British universities. There is an important

point here about medical research, much of which depends on dividend income. We look to charities to provide pioneering medical research; they also provide nurses to back up clinical research. The changes will affect not only posts in universities, but nurses and hospital beds.

Mr. Nigel Evans: I am the chairman of Marie Curie Cancer Care in my local area, so I am keen to ensure that the charity is encouraged to raise as much money as it can for the good work that the Marie Curie nurses do throughout Britain. Has the hon. Lady taken into account in the figures some of the money that will be distributed by the national lottery? It is estimated that more than £200 million will go to local charities. Has she also taken into account the changes since 1979? Despite the recession, which we all recognise, charities are in a far healthier state today than they were in 14 years ago.

Ms Harman: I hope that the Paymaster General will clarify for the House the point that the national lottery was supposed to be additional money. It was not supposed to be a national lottery that would finance charities which do the work that the welfare state should be doing but is no longer able to do. That is an important point.
The hon. Gentleman said that charities were now in a far healthier position. We and the charities do not think that they are in a healthy position. We do not want to move back to a time when basic welfare services were provided through individual donations because the Government had abdicated their responsibility to provide care for the vulnerable and the elderly in our society.

Miss Emma Nicholson: Is the hon. Lady misleading herself and, inadvertently, the Committee by not recognising the way in which funding from charities has been used over the years? With the readers of Woman's Own, I raised money for the bone marrow transplant unit at the Westminster children's hospital. That money came from individual, personal donations.
The national health service union at the time wanted to reject that £1.1 million because it was not public purse funding. That is the reality for charities that have endeavoured to step in. Because of the inbuilt horror of private funding, the NHS unions, for example, and others like them have tried to reject such funding. The Committee should think of how many children would have died if we had not managed to overcome that block.

Ms Harman: Whatever point the hon. Lady is making, it certainly has nothing to do with the point that I am making and bears no relationship to the case that I am arguing. I have been associated with many charitable appeals relating to social services and the health service. Appeals for extra cots for premature babies, extra research and so on have always asked people to help charities to raise money to plug the gap left by the Government's failure fully to fund our national health service.

Ms Tessa Jowell: My hon. Friend shares with me the privilege of being a patron of the elimination of leukaemia fund which is based at King's College hospital. That charity has recently raised more than £200,000 to open a state-of-the-art leukaemia treatment suite at King's College hospital—an integrated part of that hospital. The sting in the tail came when the fund had to


pay about £25,000 to meet the VAT requirement of the conversion. It is absolutely clear, not that there is any reluctance to receive charitable giving, but that there will soon be a reluctance from people who stand on windy street corners with collecting cans to raise money to make good what this Government have failed to do. People do not shake collecting cans to raise money for the VAT man.

Ms Harman: A great army of charitable workers are prepared to give hours of their time to raise money. There is a sense of justifiable resentment on two grounds. Not only are they raising money—the position will be made worse as a result of the Budget changes—to pay net contributions to the tax man; they will need to raise money because the Government are cutting back on services that many people believe should be provided by the welfare state.
Ironically, this blow will mean that many charities will have to cut their services to meet the VAT bills and compensate for the drop in income as a result of the ACT changes. Many of those charities are in areas formerly controlled by Conservative county councils because those councils failed to develop the necessary welfare services —they simply left it to the charities in those areas.
Barnardos say that the changes in the tax dividends credit will cost them £200,000 in lost income, the Royal National Lifeboat Institute says that it will cost it £250,000 and the Royal National Institute for the Blind says that it will cost it more than £100,000. As I said, the Wellcome Trust says that it will cost it more than £100 million. There is no doubt that the cut in income will mean that charities will have to pay the Chancellor £105 million over three years, together with the VAT on fuel.

Miss Emma Nicholson: It is kind and generous of the hon. Lady to give way to me twice—I appreciate it. I suggest that the figures which she has quoted with compassion and thoughtfulness reflect the top 400 charities. The figures for those charities are published by the Charities Aid Foundation. There are 185,000 charities in the United Kingdom and, therefore, the picture of charities that has been put forward by the hon. Lady is limited.
The charities referred to by the hon. Lady receive substantial central and local government funding. In other words, to suppose that the totality of Barnardos' income—a wonderful charity—comes from people shaking tins on windy street corners is nonsense. For many years, it has received more than 50 per cent. of its income from the Government. That gives a different picture when we talk about that charity giving back in value added tax in terms of central funding.
Does the hon. Lady agree that the projected figures that she quoted will not be correct because they reflect a tiny minority of the charities in the United Kingdom" The Government's effort on lowering the threshold on gift aid and the tax on payroll giving will enable further fund-raising to take place and, therefore, the incomes of charities will probably increase.

Ms Harman: I will not give way to the hon. Lady again because she has completely missed my point for the third time. I mentioned Barnados, the Royal National Institute for the Blind and the Wellcome Trust as illustrations—I was illustrating the Government's figures. The Government have not plucked their figures from the top ten charities. The figures are the Government's estimate of

the effect of the changes on all charities. I note that the hon. Member for Torridge and Devon, West (Miss Nicholson) did not dispute those figures, and I hope that the Paymaster General will not dispute them. I remind him that the figures come from the Red Book, the Inland Revenue press release and written answers to parliamentary questions that I tabled.
Let us be absolutely clear. The figures are not simply projections from charities in general or the top ten charities; they are the Government's estimate of the amount that charities will lose as a direct result of the Budget measures. Over the next three years, the Chancellor will receive from charities £600 million from the VAT on fuel and £45 million from the changes to tax credits on dividends. Overall, the Chancellor will gain £105 million from all charities over the next three years.
I should be grateful if the Paymaster General could confirm those Government figures, although the hon. Member for Torridge and Devon, West, who has not looked at them clearly, disputed them. Charities believe that the Government's figure for the amount that they will lose on the ACT changes had been under-estimated—they think that they will lose much more. Of course, I have taken into account the phasing over the next three years.
As for the amount that charities will allegedly gain as a result of the Budget—the plus side of their balance sheets —the Government's answer to a parliamentary question was that the tax change for payroll giving would mean that charities will benefit to the tune of an extra £1 million a year. We then examine the Government's estimate that charities will gain as a result of the change to gift aid.
The Government estimate that the additional income on the changes to gift aid and its taxation treatment will be £80 million every three years—first £20 million, then £30 million and then £30 million. Even if one accepts those figures, charities will still lose about £22 million over three years. Charities think that that figure for gift aid is wildly optimistic.
A survey carried out by the Charities Aid Foundation shows that, between January 1991 and December 1992, 64 per cent. of charities experienced a real decrease in total income because of the recession, 67 per cent. reported a fall in new donations, and 61 per cent. said that there had been a fall in corporate donations. The income for charities from individual and company donations has fallen, yet the Government say that an £80 million tax credit will be available to charities as a result of the Budget change for gift aid. How do they work out that figure? They have assumed that there will be a spectacular increase in donations to charities from individuals and companies. It simply cannot be right that the Government can assume such an increase. Where is the evidence to justify that assumption? The evidence simply does not exist.
The charities do not believe that there will be an upsurge in charitable donations. If they are to benefit to the extent that the Paymaster General and the Government say from gift aid changes in the Budget, they must attract 45 per cent. more donations than last year. They cannot see how they will do that. Charities will have to receive £60 million more in donations of between £250 and £400 to attract the £20 million of extra tax relief in the Government's first estimate. Thereafter, they would have to receive an extra £90 million per year to attract the £30 million of relief next year and the year after in the Government's estimate. So when receipts from donations to charities have fallen, the Government offer an estimated


benefit from gift aid, which has at its heart an assumption of huge increases next year, the year after and the year after that.
I hope that the Paymaster General will tell us how on earth he justifies what we regard as wildly over-optimistic figures for gift aid. Even if he is not prepared to accept that he has made an over-optimistic assessment—we believe that he should—he must not wriggle out of the argument that, even on his own figures, charities will lose significantly as a result of the Budget.
The work of charities is important. I would be important in any circumstances, but it is even more important when the Government are drawing back the welfare state and increasingly people are having to rely on charities. I hope that the Paymaster General will at least have the courage to admit that the Budget makes charities worse off. I hope that he will explain how he justifies making charities worse off in the next three years. I hope that he will also justify saying that charities will benefit to the extent that he says when the figures assume an increase in donations which charities simply cannot envisage in the next and ensuing years.

The Paymaster General (Sir John Cope): It might be helpful if I intervene now and respond to any points made later in the debate if that is necessary. I am not sure whether it is strictly necessary for me to declare an interest. In a formal capacity as the Paymaster General, I am a trustee of the Royal Hospital Chelsea and hence of some of the related chairities. I am also treasurer of the Royal Patriotic Fund Corporation. I am also, in a personal capacity, trustee of a small charity which helps a children's clinic in east Jerusalem and of a church restoration charity. I hold a non-executive office in several other local charities.
The hon. Member for Peckham (Ms Harman) did not speak much about the clause. She widened the debate considerably. I shall first say a word about the clause and the amendment and then deal with some of the general points that she made.
The clause reduces the minimum limit for gifts to charities which qualify for tax relief under the gift aid scheme from £400 to £250 for gifts made by individual donors and close companies on or after 16 March 1993. I emphasise that date for reasons which will become apparent a little later in my remarks.
7.45 pm
The gift aid scheme was widely welcomed when my right hon. Friend the Prime Minister introduced it in 1990 when he was Chancellor of the Exchequer. It has already given substantial help to charities. The figures for the latest quarter have been published today. They show that during the tax year 1992–93 charities claimed tax relief repayments of some £73 million on gift aid donations of £218 million. That means that, over the whole period from October 1990 to the end of 1992–93, charities claimed tax repayments of £138 million on donations of £414 million.
As the House will be aware, the minimum donation was originally £600. It was then reduced to £400 and is now £250.

Mr. David Hanson: Does the Paymaster General have a breakdown of the figures for gift aid donations between charities? We have heard about the top 400 charities. Before I was elected to this place I was the

director of a small charity. We had limited gift aid resources simply because the infrastructure needed to generate gift aid and payroll giving cost the charity money. That expenditure would have been speculative because we might not have obtained a return from it. I should be interested to know whether the wealth generated by gift aid and payroll giving schemes goes to the largest charities, which often do not need the money as much as the smaller charities in order to survive.

Sir John Cope: That is arguable, to say the least. The figures that I gave were for all charities of all sizes. I am afraid that I do not have a breakdown of them. It is not known how the figures break down between charities of different sizes. However, gift aid goes to charities of all sizes. Some small charities as well as large ones benefit. It depends to an extent on how much charities seek gift aid donations as opposed to other types of donation. Every charity has a different pattern of giving which it has built up historically and by which it lives.
The figures which the hon. Member for Peckham kindly gave the House were an estimated cost to the Exchequer as a result of the changes that we propose in the clause of £20 million this year and £30 million next year. I readily accept that that is not a precise estimate. The cost depends on the take-up of the relief by donors from year to year and on other factors. However, I hope that donors will take full advantage of the relief.
The hon. Member for Peckham implied that charities would need to receive £60 million more in donations to attract £20 million this year and an equivalent figure next year. But the relief will also apply to existing donations of £250 to £400 which might have been made in any case. So they would not necessarily all have to be new donations. They would be new to tax relief, but not necessarily new donations. The figure is not entirely inexplicable. I readily accept that it is an estimate. No one can be sure. We shall not be sure even when we see the figures at the end of the year exactly how much came from the Budget change. But that is the best estimate that our officials were able to make.

Sir Jim Spicer: The hon. Member for Peckham (Ms Harman) delighted in painting a doom and gloom scenario that was completely unjustified. Our new hospice, the small charity that I mentioned, had great difficulty in obtaining £600 donations. We then had a second crack at obtaining £400 donations. Now we are going out for the third time to obtain donations of £250 and we expect an enormous amount to flow in during this year. I should love to know how many hon. Members contribute through the payroll giving scheme, because I should have thought that there was considerable scope for an increase on that front alone.

Sir John Cope: I am not sure about other hon. Members, but I make a small payroll donation to one charity. Payroll giving relief has not been exploited as fully as it might have been. I hope that it will be developed more by charities in future, as my hon. Friend suggests. That would be a good thing because, as has been made clear —we shall come to this upstairs on clause 68—it is a small scheme in comparison with gift aid or other areas of tax relief in the amount of tax relief that it gives to charities, so it is capable of development from charities' point of view.
That makes the point that gift aid is only one of a range of measures. The amendment suggests that we should have brought the relief down to £200 instead of £250. The hon. Member for Peckham did not specifically address that in her remarks. But part of the reason why we did not is that we were anxious not to undermine regular giving by covenants and by the payroll giving scheme.
Many of the smaller charities to which the hon. Member for Delyn (Mr. Hanson) referred, such as churches, rely quite heavily on covenanted income. It gives them the assurance of a regular income, which they like from a planning point of view. Too large a reduction in the gift aid minimum donation could have had a substantial impact by reducing that income. That point has been made to us by the Charities Tax Reform Group among others and it is one that we took seriously.
That is why, when we examined the level of the minimum donation, we took the figure of £250 as providing a balance between encouraging more donors to take advantage of the gift aid scheme while at the same time safeguarding the interests of those charities that depend heavily on covenant income. Therefore, we do not recommend the amendment. However, the hon. Lady did not press it strongly, so she may have some sympathy with that part of my remarks.
The hon. Lady said that the role of charities was basically pioneering. I do not agree. That is part of the role of charities and it is a perfectly legitimate element of the activities of some charities, but many charities also have a continuing basis.
Charities cover a wide range of activities and are tremendously different. Some charities are large with big staffs and operations at home and overseas. Others are extremely small and run entirely by volunteers and the arrangement of their income differs a great deal. It is difficult to talk sometimes about charities except in terms of averages, which can be considerably misleading.
The hon. Lady accused my right hon. Friend the Chancellor of the Exchequer of being inaccurate or misleading in what he said in his Budget speech. But he was entirely accurate in what he said specifically about what has turned into this clause and clause 68, which was the passage that she read out, and also in what he said about advance corporation tax and charities in another part of his speech when he was talking about the changes that were being made at that point.
The hon. Lady also attempted a calculation based primarily on our figures in the Red Book and in answer to parliamentary questions to show the possible effect on charities of the Budget as a whole, taking the first three years. I hope that she will forgive me for pointing out that she was slightly inaccurate in the way that she put the figures together. On the giving side, as I said earlier, the provisions for relief on gifts apply immediately from the time of the Budget. The hon. Lady was correct in saying that we do not expect that payroll giving will involve more than about £1 million a year from the Exchequer and gift aid will be £20 million, £30 million and £30 million. That calculation was correct at £83 million.
However, I immediately add he caveat that I gave earlier. These are broad-brush estimates. I entirely accept that they are not and cannot in their nature be precise estimates of exactly what will happen. They are the best estimates of the likely effect of which I and my right hon. Friend have been advised.
The hon. Lady correctly identified the items that cost charities money, but she seemed to forget that VAT on fuel and power does not apply until next year and does not apply in full for two years. Dividends have a small implication this year. We estimate that it will be about £5 million on charities in 1993–94, £15 million in 1994–95 and £20 million in 1995–96. Again, that is a broad estimate, not a precise figure. I am not sure that we shall ever be able to give a precise figure in that respect.
If one accepts the estimate of VAT, the cost of that for charities is nil this year, 1993–94, because it does not apply at all, approximately £10 million in 1994–95 and £25 million in 1995–96. Those, taken together, total £75 million. The net effect of the Budget on charities during the first three years is a positive benefit of about £8 million. Therefore, the hon. Lady's point is not nearly as strong as she made it out to be. However, of course it is correct that there are items in the Budget that cost charities money, or reduce their income. We readily accept that that is the case and have acknowledged that throughout.
In part, it is true, too, that when we have reduced income tax the relief goes down. That has always been true. The traditional reliefs, as well as the gift aid and the other new reliefs that we have introduced, are less valuable if there is less income tax to refund to a charity on its income.
Nevertheless, because of the extra giving that has been encouraged, in part because of the extra money that people have in their pockets when they pay less income tax, for example, and because of the changes over the years, in 1979–80 direct tax relief for charities amounted to £175 million. In 1992–93, the year just gone, despite the reductions in income tax, and hence the reductions in money going in reliefs in that kind of way, the total had risen to £779 million in direct tax reliefs alone. There are also some special reliefs on VAT, both those that have been more recently introduced and those of longer standing. I do not believe that the reduction in income tax rates has damaged the income of charities.
These arguments are relevant when trying to calculate what the effects might be of Budget changes, including these changes. I believe that my right hon. Friend was right to introduce into his Budget the provision that is embodied in this clause. It was right to set the limit at £250 for gift aid and to make the payroll giving improvements which come under another clause. It would not be right, therefore, to accept the amendment.

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Ms Liz Lynne: I agree with the amendment. The Government have made certain concessions, but they do not go far enough. Furthermore, the amendments do not go far enough. The gift aid and payroll giving concessions do not make up for the present shortfall, especially after the implementation on 1 April of community care. Many charities and voluntary organisations will have to pick up the pieces, because local authorities will no longer be able to provide various services. They will be unable to do so because the Government have not provided them with sufficient money to meet their community care commitments.
Charities will face tremendous problems in the present economic climate. People are in difficulties over giving money to charities. The result of unemployment in Rochdale and elsewhere in the country is that people are


cutting back on their charitable giving. If there is an increase in gift aid and payroll giving, there is bound to be a decrease in other charitable giving. People have only so much money that they can afford to give to charities.
Charities do a worthwhile job. I have been the sponsor and patron of various charities for a number of years and I welcome the work that they do, but they should not do what health authorities and local authorities ought to be doing. For charities to receive an additional £30 million in gift aid, as the Government have suggested, would mean a staggering 83 per cent. increase in giving. No hon. Member can imagine for one moment that anyone will increase their giving by 83 per cent.
The change in the tax system introduced by the Budget will lead to charities receiving only 20p in the pound on investments. The Chancellor has admitted that over a number of years that will lead to a reduction of £50 million a year in dividend income. I have not plucked that figure out of the air, but that is not what the charities say: they say that their dividend income will probably be reduced by £100 million.
The Government's concessions will not meet the present shortfall. Charities are extremely worried about the future. I spoke this evening to representatives of one charity who fear the effects of a decrease in charitable giving. The hospice movement, which does a very good job, is in great difficulties. It is competing against other charities. I support my local hospice, but I am told that it will be unable to attract the amount of money that it needs because VAT on fuel and power will hit so hard. The fact that there is no VAT exemption for charities is despicable.
The Government say that they want to help charities, but they have done nothing to help them in this Budget. I hope that they will do more in the autumn statement than the feeble attempt that they have made to help charities in this Budget.

Mr. Alan Howarth: I welcome clause 67, which will lower the minimum limit for gift aid from £400 to £250. This is the second time in the short history of gift aid that the Government have sought to lower the limit. As my right hon. Friend the Paymaster General has just told the Committee, gift aid has already proved itself to be a most valuable instrument for raising money on behalf of charities. This reform is a modest improvement to the scheme, but it needs to be seen in a larger context—the progressive development of fiscal support for charities throughout the life of this Government.
In 1980, Sir Geoffrey Howe doubled the capital transfer tax exemption on bequests to charities to £200,000. He also exempted charities from development land tax and reduced the minimum period for covenants from seven to four years. Year after year since then, in Budget after Budget, in Finance Bill after Finance Bill, we have seen the development of fiscal incentives and tax reliefs to encourage charitable giving and to support charities.

Mr. David Hanson: Did not Lord Howe also double VAT to 15 per cent. which, as the hon. Member for Rochdale (Ms Lynne) said, cannot be claimed back by charities and is a heavy burden upon them? Whatever the tax concessions given by the Government may be, was not

the doubling of VAT to 15 per cent., and its extension to 17.5 per cent., a greater burden than any tax concessions by the Government could offset?

Mr. Howarth: It is true that VAT was raised substantially at that time, but the purpose was to enable income tax to be brought down. Lower levels of income tax have made a huge difference to people's capacity to make their own decisions as to how to spend their money. That is one of the reasons for the substantial growth in charitable giving in the past 14 years.

Sir Terence Higgins: Is it not the case that when value added tax was first introduced it proved impracticable to give complete VAT relief to charities and in the early 1970s concessions were made to charities which were sufficient to offset that tax? Subsequently, time and again there have been further reliefs for charities. There cannot be the slightest doubt that if one took away all the concessions that have been made to offset the effect of VAT and got rid of the VAT problem itself, charities would be a great deal worse off. Is it not a fact that the measures taken to offset VAT are far more beneficial to charities in relation to the impact of VAT?

Mr. Howarth: My right hon. Friend speaks with particular authority on these matters. He was, indeed, the father of VAT—a title of which he is justly proud. I acknowledge the force of my right hon. Friend's argument.

Ms Lynne: According to the Government's statistics, there will be a loss of £22 million over the next three years. The figures provided by charities suggest that the loss will be even greater than that, so I do not understand the point made by the right hon. Member for Worthing (Sir. T. Higgins).

Mr. Howarth: The hon. Lady diverts me from the development of my argument. If she will allow me to do so, I shall try to make progress. We shall no doubt return to this issue at a later stage of the debate.
What I hope to demonstrate is that the reforms, albeit modest, that the Budget makes in the interests of charities have to be set in the longer-term context. Under the 1983 Budget, the wages of staff seconded to work for charities were made allowable against tax for their employers. In 1984, tax relief on family cars which had been substantially adapted for use by disabled people was extended. In 1986, the tax treatment of close companies was reformed in the interests of charitable giving and payroll giving was introduced. The Bill marks the fifth occasion on which the Government have sought to develop and improve the payroll giving scheme. We have seen VAT concessions, such as that in 1989 on fund-raising events.
Taking all those measures and many others together, the value of charitable tax reliefs is now about £900 million. There is therefore no doubt whatever about the Government's commitment to support charities and the consistency with which the strategy has been developed. I know that my right hon. Friend the Minister's personal commitment and his sensitive awareness of the needs of charities are well appreciated in the charitable world.
The history that I have briefly related has made eminently good sense. It is appropriate that a Conservative Government should nurture a tradition of charitable giving which dates back at least to the Elizabethan Statute


of Uses of 1601. Government have an indispensable, bedrock role in the relief of poverty and in the provision of care for people in need, but it is essential that we also build local and personal responsibility, that we mobilise the generosity of society and that we encourage the better parts of human nature.
In the words of Sir William Beveridge in 1942, what is needed is a
comprehensive policy of social progress.
Beveridge always preferred to talk in terms not of a welfare state but of a welfare society, and it is always necessary to improve both the welfare state and the welfare society. They are part of each other. It is always necessary to think anew about how we can better match the resources of society to the developing challenges that we face. I put it to the hon. Member for Peckham (Ms Harman) that state bureaucracies are a necessary but insufficient means to this end.
Let us recollect that the origins of the welfare state are twofold. It derives from 19th century paternalism and from 20th century egalitarianism. Its origins are political and its manner of operation is bureaucratic. It is magnificent, but it is limited. It is powerful, but it is inevitably crude. People's needs vary infinitely. No one's needs conform to any standard and the problems of individuals are not susceptible to remedy by standard means. The state must provide basic guarantees—indeed, it must provide more than basic guarantees—but charities are an essential complement to the state. I was sorry that the hon. Member for Peckham was unwilling to see charities in that role. She spoke of charities as gadflies and as pioneering. She is right on both points, of course, but I should like her to acknowledge that charities are indispensable and valuable permanent partners to the state in its undertakings.
Charities, after all, have qualities that I would term entrepreneurial. The hon. Lady may feel that that is a term imported from an alien culture and that it is inappropriate. But at their best, charities are motivated to find out and meet demand, and to respond to changing needs. They work from the bottom up, not from the top down. They have a depth of local knowledge and a sensitivity to local circumstances. They are animated by the enthusiasm of their staff and their voluntary workers and not by direction from on high in big organisations. They sit loosely to convention. They are willing to experiment and innovate. They are energetic. They have a delicacy and a precision that the broad brush of bureaucratic provision inevitably lacks. They respond to individual needs and not to the abstractions of policy.
I do not mean to idealise charities. Too many charities are hidebound, timid, amateur and incompetent, but the best are creative in the senses that I have described arid we need them more than ever. Clause 67 is right and necessary because it builds on the support that the Government have given to charities.
Charitable and voluntary work meets the needs not only of the recipients but of the givers. To help one's fellow men and women has a profound appeal to many people. I think, for example, of retired people looking for outlets for their energies and talents. I think of those for whom the ordinary routines of getting and spending are simply not sufficiently satisfying in their personal lives. I think, too, of unemployed people, and in this regard this week's Incomes Data Services report offers us all matter for reflection.
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It is, of course, very encouraging that unemployment among women had fallen to about 5.6 per cent. at the start of the year. But unemployment among men remains high at 14.1 per cent. We cannot realistically hope that the gap will quickly close, and the important challenge to policy makers is to help those men find a role in our society. Through voluntary work, many people can feel needed, they can contribute and they can recover a sense of belonging. Through voluntary work, their self-esteem and self-confidence can be restored. They can develop practical skills, after which they will find new opportunities for themselves.
I agree very much with my right hon. Friend the Prime Minister, who said in a speech at the beginning of February:
I believe we must do more to recognise, support and encourage the habit of volunteering, which cements together our society and is one of the great glories of our national life.
That means strengthening volunteer bureaux such as the excellent one in Stratford-on-Avon, and although it is a delicate and sensitive task for Government, they must do what they can to assist the development of neighbourhood networks of volunteering. If we can do that, we shall provide opportunity for many people for whom we ought to find opportunity, and we shall strengthen the bonds of our society. It is interesting to note that, a month after my right hon. Friend the Prime Minister's speech, President Clinton announced his scheme for national voluntary service in the United States.
On 2 March, I asked my right hon. Friend the Prime Minister whether the Government would
look systematically to identify and eliminate obstacles which at present discourage voluntary work and charitable activity, including aspects of eligibility for both unemployment benefit and invalidity benefit". [Official Report, 2 March 1993; Vol. 220, c. 135]
Shortly after that, I was glad to be one of the sponsors of an all-party early-day motion, No. 1597, which asks the Government to change the availability-for-work regulations to allow a volunteer seven days in which to give up a voluntary position, to alter the regulations for out-of-pocket expenses, to allow unemployed people to attend voluntary work camps throughout the European Community as well as in the United Kingdom, and to require those who advise benefits claimants to use discretion to encourage volunteering and not to limit it.
I do not have in mind—nor, I believe, do the other signatories to the motion—a scheme of compulsory workfare. What we are thinking of is encouraging those who want to give back to society in exchange for the support that they have received. I put it to my right hon. Friend the Minister that that is complementary in its spirit to the citizens charter, which properly insists on the rights of individuals. We need equally new emphasis on the obligations of the citizen.
In reality, we have no option but to proceed towards decentralisation, to diversification, to partnership and to enhancement of the role of voluntary work and charities. The age of centralised bureaucratic government is passing. We live in a society in which information is disseminated instantly and in which our citizens are educated, confident and insist on their independence. In any case, we are driven in this direction by a fiscal imperative: it is no longer possible, if ever it was, for Government simply to raise more and spend more.
We are all aware at the same time of the growing demands in our society for better quality services and for new varieties of services, such as the hospices that my hon. Friend the Member for Dorset, West (Sir J. Spicer) mentioned. We therefore have no option but to find new ways of meeting social need. The role of Government is to mobilise the resources of society, to empower and to provide incentives.
In that process, I have no doubt that local government must play a major part and must be welcomed in its role. If we ask for neighbourliness we must certainly respect and encourage the sense of local community. For the purposes of my argument it does not matter whether local government is controlled by the Conservative party, the Labour party or the Liberal Democratic party, but I am sure that we need flourishing local communities able to express themselves and to pursue their aspirations through the institutions of local government.
That sense of local community will be expressed not only through local government but through an abundance of local voluntary organisations and local enterprises all working in partnership. What I advocate certainly does not entail any abandonment of responsibility by central Government, who should use their leverage to shape local and private decisions so as to enable us better to pursue our social goals.
Much of what I have described is already happening. Care in the community is a conspicuous instance. The Government have been right to entrust the lead responsibility for care in the community to local authority social services departments, but it is also right that social services departments should not seek to do everything directly themselves through bureaucratic provision. Central and local government are taking charities into a new and much more formal partnership in social provision. That makes it incumbent upon us to think clearly about the role of charities and about what the impact on them of this new dispensation may be.
For example, before 1 April 1993, residential care was frequently provided by charities and paid for by residents subsidised by public funds from the Department of Social Security. Since that date, when funding was transferred from the Department to local authorities, charities have been contracted to become part of a publicly provided service. I accept that change, but let us be clear that it is a change of profound and far-reaching importance to charities. We will need to observe carefully the impact of the new dispensation on the nature of charitable activity and motivation.
That makes it all the more important to distinguish between funding charities through grant or fee to perform contractual functions, and supporting charities through fiscal relief to enable them to use their own initiative for the betterment of society. Both those roles for charities are essential. However, the latter—the encouragement of charities to use their own initiative and entrepreneurial energy for the betterment of society—needs sensitive consideration, given the difficult financial climate that they have had to face. The difficulties are well documented in the Charities Aid Four-illation report, "Charities in Recession".
As other hon. Members have said, during the recession there has been a decline in voluntary giving and a falling away of the income of charities. Public expenditure constraints have meant that local authorities are less well placed to direct funds towards charities. We must also

consider what the impact of the Government's decision on the urban programme may be. There are further uncertainties about the future of city challenge. I hope that city challenge will have an important part to play in future policy because it seems to be one of the most creative means of mobilising the resources of the community that we have yet seen deployed in this country.
I welcome the clause, and the proposed improvements to the gift aid scheme and to payroll giving. There is an argument, to which my right hon. Friend the Paymaster General referred, that if the limit of gift aid is reduced there will probably be a falling off in the number of covenants made. That is a valid fear, but it is also fair to note that for many years charities lobbied for what was called the single-year covenant, so perhaps they do not have absolute grounds for complaint.
I have to say—and I say it with sadness—that on balance this Budget disadvantages charities. It might be said that that is no great surprise. Charities are a huge presence in our national life and in our economy. In 1990, there were 171,434 registered charities with income in the order of £17 billion or more than 3 per cent. of gross domestic product. Charities employ at least 200,000 paid staff and there are about 1 million charitable trustees in our society. Perhaps, therefore, it is inevitable that, in a year when the Government are bound to raise taxes, charities will have to bear some of the brunt. Indeed, it would be difficult to exempt them entirely. All the same, I greatly regret the fact that charities are being asked to face an increased VAT burden, and I regret that the impact of the change in advance corporation tax, notwithstanding the transitional relief, seem certain to be so detrimental.
I ask the Government to stand back and consider the overall, net impact of their policies. It is worth asking whether, even at a time when general taxation has to increase, it is appropriate to increase the burden of taxes on charities. Charities should not be compared with private individuals or companies. As I have said, the Government are asking them to play an increased role in social provision. For all the reasons that I have sought to explain, the Government need charities, and my right hon. Friends should consider carefully the consequences of simultaneously reducing the resources available to them.
We must contemplate not only the measures in the Bill but, for example, the impact of the council tax on certain charities. Most residential homes run by charities have in the past been exempt from rates, but charities are not entitled to an exemption from the property element which represents 50 per cent. of the council tax. Transitional relief is being provided, but the Leonard Cheshire Foundation estimates that after the transition the change will cost it £210,000 a year. That aspect of the council tax will also be a disincentive to charities to subdivide their larger homes into smaller, homelier residential units, which would otherwise be desirable for care in the community.
We must also bear in mind the impact of the national lottery, which will inevitably divert some money from charitable giving. Although it is not properly the subject of today's debate, I hope that my right hon. Friend will be willing to contemplate an amendment to the Bill so that instead of a 12 per cent. tax being imposed on lottery ticket sales, winnings would be taxed so as to enable a larger proportion of the money spent on the lottery to go to good causes.
It is important to examine the overall impact on the charitable sector of the policies simultaneously being pursued by the Government.
I would not vote for the amendment and I am not even sure whether the hon. Member for Peckham will invite me to do so. None the less, it has provided a useful opportunity for debate, although we all know that, if carried, its practical effect would be relatively trivial in the context of the larger issues that we have discussed.
I ask my right hon. Friends in government to develop in the range of their policy making a clearer and more consistent concept of what they are asking of charities, and to ensure that an appropriate range of supportive fiscal policies is in place.

Miss Emma Nicholson: My hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) made a splendid, wide-ranging speech about the impact of charities on people who give, on people who help and on people who receive help. That veritable tour de force by the chairman of the all-party group on charities was a wonderful speech to listen to and I am grateful to be allowed to follow it, although I shall employ a slightly different mode of thinking.
We are debating how charities are funded and where the funds are found. As a derivative of that discussion, we have strayed into the subject of what work charities perform. We have also talked a little about what we believe charities should contribute to our society's social welfare and educational structure. The two small planks on which the whole discussion has been built are the ways of giving to charity —gift aid and payroll giving. I refer to them as small planks because the enormity of charitable giving outstrips them by far.
I am glad that a number of hon. Members have commented on various ways of giving. I stress that payroll giving can never be the largest source of income for a charity. Opposition Members who have talked about payroll giving as if it were something that could transform a charity's income may have been misleading themselves. That was never the intention.
Payroll giving was started in 1947 by a Jewish charity called Children and Youth Aliyah—the British arm of a Zionist movement. The charity was set up to raise funds to settle Jewish children from various countries in Israel. It was formed by people who had small factories. In order to get their staff and their families—these were often family businesses—to contribute, payroll deductions were started.
There was a link-up with the Save the Children Fund at about that time and the two charities ran the scheme together. For many years they were the only charities to do this. It was a combined operation. Why only two charities? Because it is a very labour-intensive scheme to run. A very large number of people are being asked for small sums of money. To make payroll giving effective at that time, a factory's entire work force had to agree to give. Otherwise it would not have been worth the effort of the payroll clerks, cost accountants and finance directors. This was a very difficult type of fund-raising to run. It depended heavily on organisers going in and persuading people on the shop floor to give.
Now that the Government have stepped in, the situation is much easier. Payroll giving has been

transformed into an eminently possible source of funding, albeit still on a relatively small scale. It is on a small scale because people are being invited to contribute regularly from their pay. They have to make a personal commitment. However, the system is infinitely easier now that the Government have stepped in and made it possible to do things which we in the Save the Children Fund did with such difficulty for so many years.
Gift aid is wonderful, but it will never be the largest source of charitable giving. By far the largest source of charitable giving in this country is events to raise money. Indeed, I hate to tell hon. Members that the preferred United Kingdom means of raising funds is jumble sales. People love to give a little while they enjoy some activity. British people give with a sense of fun and merriment to causes that meet needs which are sometimes of deep social and personal significance. This is particularly true of overseas causes.
Some years ago the classic model of a charitable giver was a middle-aged lady—a churchgoer or someone who attended the synagogue regularly or went to the mosque. One would encounter a high proportion of widowed people and quite a high proportion of professional people. Those who went to church tended to give to one special charity, with two runners-up; those who went to the synagogue gave regularly to 25 charities; those who went to the mosque were involved in quite a wide spread of charitable giving.
I do not wish to attribute to the Government a greater impact upon the charity world than has taken place, but, from my own substantial experience in this field, I have to suggest that the Government have transformed the donor profile. Consider Comic Relief and the way in which younger people are now contributing so much more. There is a wider variety of options for giving, and this year's Budget reflects two small but significant methods that the Government have pioneered. A much broader section of the population is now involved in charitable giving.
Contrary to what several Opposition Members have said, the United Kingdom is exceptionally generous in its giving. The generosity is shown both by individuals and by the Government. We are tenth in the league of donors internationally, and as individuals we are second or third. Britain has always been a profoundly generous nation. It has always been generous to people in need, both at home and overseas. In the recession the income of some charities has indeed gone down, but it should be borne in mind that the income of some has increased. That applies to many overseas aid organisations.
It is not too far-fetched to suggest that British givers put their money where they see the greatest need. Perhaps they have not been giving quite so generously to some charities that operate in the domestic field as they are aware of the greater state provision. Despite all the talk about cuts, I am aware that some national health service figures are going through the ceiling. The same thing applies to social services provision—what Opposition Members refer to as the welfare state. Is it possible that British donors believe that their money is better targeted to areas where there is little or no state provision? Is it possible that they wish to leave to the state those areas where the state is making full, rich and complex provision?
It is difficult for the Opposition—particularly for the Labour party, with its desire for total state provision—to accept that charities have a real and continuing part to play. I do not for one moment doubt the generosity of


many individual Opposition Members. Indeed, some of them have assisted my own small initiatives to help the helpless. I know how tough the situation is. Opposition Members talk about a pioneering role for charities. A pioneering role is one thing, but the continuation of provision is surely also a proper function of charities in our most modern of welfare states. There are many actions in which the state should not get involved.
Take Relate as an example. People who are helped by that organisation do not say that the Government should take it over, that provision should be made by the state, and that the welfare state should be tampering with their marital breakdowns or personal-relationship difficulties. What the public ask is that the Government continue to fund Relate generously and regularly so that this voluntary, or quasi-voluntary, organisation may continue its work. I am referring not to its pioneering work but to its continuing work. Meals on Wheels is much more old-fashioned, but is still valuable. The Government fund it, but nobody suggests that they should take it over and deliver the meals, depriving people of the love and care that come with the service.
I suggest that charities have a continuing role, woven into the weft and warp of our social services and our health and education provision.
I am one of the two founders of a charity called Cities in Schools. It is an odd title which came about because Mrs. Carter read it back to front; it was meant to be "Schools in Cities". It is a new initiative, based on a United States model which we have converted to a United Kingdom perspective. It is non-political, as is proper for charitable efforts, and targets truancy.
I do not believe that we will have a pioneering role which will enable us to work ourselves out of a job. We are helping children back into mainstream education in Cardiff, Bethnal Green, Tower Hamlets and other places. Our uniqueness is that we are not a Government body but a voluntary organisation. Cities in Schools involves a mixture of volunteering, enthusiasm and professionalism, and is backed by the local community, the educational system and local businesses.
That brings me to another point about charitable giving. It is measurable not just in money, although that is a terrible thing to say with the Financial Secretary sitting in front of me. Cash is an enabler, but there are other forms of giving. Burger King assists Cities in Schools in the provision of buildings. Other companies give major gifts in expertise, management and work experience. The Opposition do not much like business involvement in charities, but that is the way to turn young lives away from truancy and bring them back into the main stream. Why do I think that our work will continue? Because I do not believe that truancy will stop tomorrow or that the heavy hand of the state can have the same effect on those youngsters as we can.
Charitable effort is a continuation of the work that so many of our forebears did historically before the welfare state came into existence. The United Kingdom has a wonderful inheritance of charitable work. We heard a reference to 171,000-plus registered charities, but there must be just as many which are not registered and which

carry on a great deal of work. Many of them are very small and have no staff. Many are funded completely voluntarily and do not obtain money from Government.
How very different their perspective is from that of the larger charities, the top 400, which are so often quoted as the charitable world because the Charities Aid Foundation takes their income, expenditure and style of activity as the norm. It is not the norm. Their expenditure on advertising, salaries and cars, for example, is beyond the norm. Most charities are run very economically and are very much smaller. In most cases their efforts are overlooked.
We have strayed a long way in the debate from gift aid and payroll giving, but that straying has been thoughtful and should encourage the Government to continue thinking of ways to assist the work of voluntary organisation. I make no apology for talking around the profile of the giver and the way in which the work of charities enlarges the work of the state. Those points were raised by the hon. Member for Peckham (Ms Harman) in her criticism of the initiative by the Government. It is right and proper that we should respond to her.
I pay tribute to the great generosity of the British people in their giving. I thank the Government for the many ways in which they have made giving more attractive for donors in recent years. In the past couple of years, I have raised £3 million to £4 million and I never fail to be astonished at the imagination and sensitivity of people in recognising need and in giving time, professionalism, expertise and money. Again I thank the Government for making it easier for donors to be generous.

Amendment negatived.

Clause 67 ordered to stand part of the Bill.

Clause 115

FIRST YEAR ALLOWANCES: MACHINERY AND PLANT

Sir Giles Shaw: I beg to move amendment No. 37, page 84, line 15, leave out 'subsection', and insert 'subsections'.

The Temporary Chairman (Mr. John McWilliam): With this, it will be convenient to discuss amendment No. 38, in page 84, line 23, at end insert—
'(3C) This section applies to so much of any expenditure as is incurred by a person carrying on a trade, on the provision of a ship.".'.
May I remind the Committee, because it is a Committee, that charity is finished with and that the Chair resumes normal service? Hon. Members must speak to the amendments before the Committee.

Sir Giles Shaw: The amendment is not unworthy. On the contrary, those who have taken an interest in the extremely gloomy and prolonged decline in the British marine fleet and the shipping industry are bringing the issue correctly to the centre of the Government's policy making, which is the Budget. I am glad that my hon. Friend the Financial Secretary is in his place because these issues must be addressed carefully, urgently and in a constructive and effective way.
It is common knowledge in the Committee that the decline in the shipping industry has been profound. The purpose of tabling the amendment was, first, that the industry is in a parlous position and requires specific action. Secondly, it is to increase capital allowances to


100 per cent. so that there may be some encouragement for the building and replacement of ships. Thirdly, through my hon. Friend the Financial Secretary, I point out to the Government and particularly the Department of Trade and Industry that time is fast running out, and that unless the Government act in fairly short order it will be too late to make any constructive and long-lasting change to the irreparable decline.
As to the shipping industry itself, the United Kingdom maritime fleet is No. 33 on the world list. That of itself is a miserable statement. I understand that on the latest register there are only 425 vessels, with a gross registered tonnage of only 3.4 million tonnes. The decline has been steady, protracted and virtually unerring in ratio, so that one can reasonably plot that by 2010 the British shipping industry will have disappeared. It was because of that order of magnitude of decline that we decided to table the amendment. It is essential that action is taken now. That is particularly so when the demand for shipping is growing at 4 per cent. per annum. One cannot complain that there is not a market in which to compete and a need for good, efficient and effective shipping.
The need for a British shipping industry has been firmly established; no words of mine are needed to add to the good causes which we should now pray in aid. It is essential for a trading nation to have an effective shipping and marine industry. It is essential for an international trading nation to have it on a scale that allows international competition to be met. It is essential for a nation that has significant overseas committments and has had the capacity in recent times to require logistic support for defence needs to maintain that capacity.
The second area of need relates to the fact that the British marine shipping industry and ships are now aging rapidly. The average age of British ships is about 16 years. With that increased life comes not only the need to repair and restore, but increased inefficiency. Modern technology being what it is, it is now posible to find engines which are much more effective, run on less fuel, provide more power and are more mobile and useful in every possible way. So with the decline and ageing come higher costs through inefficient operating levels. Thus it is that, according to the Chamber of Shipping, it is a requirement that some three quarters of the British fleet be replaced by the year 2000. The need is established in fairly clear terms.
The requirement of replacment brings with it a consequential benefit for British shipbuilders. I need hardly remind my hon. Friend the Financial Secretary, on a day which has seen a question and answer on the subject of Swan Hunter, of the vital importance of providing for increased orders for shipbuilders. Certainly, at least half the orders required to modernise the fleet up to the standards required will be placed with British suppliers.
Having set out the need and the background of decline, let me come to the specifics. What should be done? My hon. Friend the Financial Secretary will note that the amendment deals with capital allowance—a well-accepted system, widely practised and clearly a Government favourite, because in the Budget there is increased provision for capital allowance for industrial investment. There is no doubt that this is, in the Government's view, a satisfactory mechanism through which to deal with investment, and investment in the industry is certainly required.
It therefore does not seem illogical that, if there is an industry that needs special care and attention—not

charity, but special care and attention—the instrument of capital allowance is a reasonable one to select. That is the purpose of the amendment. The Government are committed to produce, through this Budget, a budget for industry. The British shipping industry, which is surely within that compass, also requires special care and attention.
Over the years, the Government have been extremely generous in providing a wide range of assistances—if I can use that word—to various industries. If businesses come from outside this country, grants are available if they locate in certain places. Regional grants are available in some areas and in areas of decline substantial grants are available through various measures introduced by the Government and applied through the Treasury or the Department of the Environment. Regional aid, relocation grants and development grants come into this. There is the Urban Development Corporation, for example, introduced to provide special initiatives using Government funds to help establish new industries.
There are also enterprise zones, introduced, as I recall it, to provide a zone in which there would be significant tax relief for the establishment of certain industries. On the grand scale, this Government, as many predecessors on both sides of the Committee would agree, have been hugely supportive of agriculture and of major public industries, into which the coal industry assuredly fits, with the massive support that it has enjoyed over the years in connection with its indebtedness.
So there is no shortage of information that leads us to believe that the Government have looked at industrial problems and used taxpayers' money to help relieve them.
It is against that background, therefore, that I claim that the amendment is relevant to the kind of policy that the Government should be adopting at this time for the industries which they select. If there is to be a significant improvement in the profile for British shipping, it is vital that the Government find the appropriate mechanism to ensure just that.
One idea that the industry has is the creation of a maritime enterprise zone in which a scheme would be provided which might be attractive to my hon. Friend because it would be ring-fenced. He often finds that simple additions of aid or altering the tax allowance on the capital grant is difficult to operate. The maritime enterprise zone, however, would be unique to the needs of British shipping and could provide a formula worth looking at and applying.
If, through the capital investment proposal that we lay before the Committee or the maritime zone, there were a significant improvement in the industry's prospects, what benefit would that bring? The answer is significant economic return. There is little doubt that the amendment, if applied, could, according to the Chamber of Shipping, stabilise the position of the fleet within five years. And, if it were accompanied by investment over a period of time in new and more effective and competitive ships, the fleet could be stabilised in five years and the average age could probably be reduced from 16 to 10 years. Over 10 years, perhaps, the fleet could be increased by some 40 per cent. by volume.
All this would bring huge benefits to our economy. Overseas trading and earnings and the international commitment to shipping which this country has for


generations established would grow and with them the marine engineering industries and many related industries would flourish.
The case is made out for taking some action to assist the industry at a point at which it would appear to be entering a phase of decline that will be terminal unless action is taken.

Ms. Joan Walley: Does the hon. Gentleman agree with the estimate of the British Chamber of Shipping that unless the Government take urgent action there will be no merchant fleet left by the time of the next general election?

Sir Giles Shaw: Had the hon. Lady heard my opening remarks, she would have heard me say that by the year 2000 the merchant fleet will have declined to virtually nothing.
Ideally, I hope that my hon. Friend the Minister will accept the amendment for action now as it would be consistent with the mechanism of the investment allowance and the measures in the Budget for industrial investment in general. If my hon. Friend is not so minded, I press him to consider the matter and, with the agreement of the industry, work out a plan which, in his eyes, will be effective to do the job, because it has to be done.
If simple allowances are not satisfactory, we must come back to the House with a scheme that will provide for recovery, refurbishment and reinvestment to produce a greater, more competitive and more efficient maritime service than that which we presently enjoy.
The clause is of real and crucial importance to the industry, which does not in its own right require any charitable treatment, but which is a quintessential industry. It is one of the few industries that one can isolate and say that an island nation demands an adequate, properly staffed and efficient merchant marine.

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Mr. John Hutton: I support the amendments because they will help the shipping industry and the shipbuilding industry. I should like to concentrate on their possible impact on the shipbuilding industry.
The economic arguments in favour of the amendments are convincing and the hon. Member for Pudsey (Sir G. Shaw) put them effectively. He referred to many strong economic and commercial arguments in favour of the clauses, and I shall not detain the Committee by repeating them.
I was not in the Chamber at the beginning of the hon. Gentleman's speech, and I apologise for that, but I assume that he has also made the strategic case for increasing the size of the United Kingdom merchant fleet, which has a significant role in commercial activities and in the security and defence of the nation.
The hon. Gentleman spoke about the significance of the shipping industry to the commercial health of the nation. The Committee should be aware of the major contribution that the industry has made over many years. However, in the past five or six years the situation has become extremely serious. The number of United Kingdom registered ships has halved in the past seven years and our merchant fleet now ranks 33rd in the world, behind countries such as Cyprus and the Bahamas, as hon.

Members will be surprised to discover. That is serious for Britain's strategic place as a maritime nation that relies heavily on the activities of its merchant fleet.
I want to mention the importance of these measures to the health of Britain's shipbuilding industry. In the past few days, there has been a major threat to one of the finest shipyards in the country. It is incumbent on the Government to take a strategic overview of Britain's shipbuilding industry.
The hon. Member for Pudsey drew attention to the importance of renewing Britain's merchant fleet. I speak for all my hon. Friends when I say that that is an urgent imperative.
It is no longer an option for the Government to do nothing about what is happening to our maritime industry. As a country we depend on our maritime industry, in particular the British shipbuilding industry, which has been decimated in the past three years by the Government's failure to consider the importance of those industries to the health or the nation.
I find it depressing when Conservative Members, although there are not many present tonight, talk about the shipbuilding industry as representing yesterday's technology. That is a completely bogus contention. I invite any Conservative Member who wants to experience at first hand the strength of the technological base of Britain's shipbuilding industry to come to my constituency and see the investment that has been made in the shipyard in Barrow and the quality of the engineering work that is carried out.
There is evidence of that high-quality work in every shipyard in the country, on the Clyde and on the Tyne. If hon. Members want to see the quality of the work on the Tyne, they had better get there quickly, because the decisions that the Government have taken have left the shipbuilding workers on the Tyne cruelly exposed to a decimating future of unemployment.
I should like a sign that Conservative Members will show some imagination, which is rather a lot to expect from some of them, about the growing scale of the problem faced by many shipbuilding workers who have served the nation incredibly well over many years and deserve better.
The shipbuilding industry, in particular, looks to the Government to give some indication that they are aware not only of the contribution that the industry has made in the past, but of the contribution that it can and should be allowed to make in the future. The merchant fleet lies at the core of the argument. We accept that the volume of naval work will inevitably decline, but the same cannot be said of our Merchant Navy.
Although we face stiff competition from the far east and the Pacific rim—with which we need to deal—we should not simply throw up our hands and say that we can make no decision to help the British shipbuilding industry to survive into the next century. We can make such decisions, but we must recognise that inaction is not an option: failure to act would decimate employment opportunities all over the country.
The hon. Member for Pudsey spoke of the importance of the merchant fleet, and rightly drew our attention to the increasing age of that fleet. The average age of British merchant vessels is now over 16 years. The need for replacements is urgent, and the best way of providing them is to place orders with British shipyards. Perhaps the most excellent contribution that our British shipyards can make


is in the design and building of clever, high-tech cargo vessels—vessels that will be needed in the future to carry specialised products around the world. The hon. Member for Pudsey mentioned the expectation that world trade will continue to increase. We need to ensure that British shipbuilding, and the British shipping industry, can contribute to and share in that increase.
I urge the Committee to support the amendment, on which I hope we shall be able to vote. We need to test the backing of the Committee not only for the future of Britain's shipping industry—which has made a strong contribution to the commercial health of the nation over many decades—but for the desperate need to alleviate the chronic mass unemployment that now affects many shipbuilding communities.

Sir Terence Higgins: I spent the first seven years of my working life in the shipping industry, and qualified as a member of the Institute of Chartered Shipbrokers. At that time, the British shipping industry was at the forefront of world trade in terms of both liner trade and tramp shipping. Since then, there have been massive technological changes in the form of roll-on/roll-off ships, the development of container vessels and so forth; but—alas —there has also been a huge decline in the size of the British register and the scale of British shipowning.
I believe that, at an early stage, British ship owners were too confident of their own abilities. They thought that they could compete regardless of whether other countries' owners were receiving huge subsidies from their Governments. That went on for some time, and the British register declined. By the time British ship owners had realised that they could not win such an unfair contest, it had become difficult to obtain Government support.
Across the world—here I differ somewhat from the hon. Member for Barrow and Furness (Mr. Hutton)—Governments subsidised shipbuilding rather than ensuring that they had competitive shipowners. The result was massive over capacity, with ships being mothballed and —in some cases—being built and then never going to sea before finally being scrapped. The balance between shipowning and shipbuilding has been unfair and wrong—although, as the hon. Gentleman pointed out, the amendment would help both to some extent.
My right hon. Friend the Chancellor of the Exchequer is very keen on talking about level playing fields. It should be recognised that some playing fields are very difficult to level; that certainly applies to international subsidies, especially shipowning subsidies. The Chamber of Shipping has made it clear that it is behind the Government in seeking to get rid of subsidies across the board; meanwhile, however, something must be done to help those involved. That is the reason for the amendment on which my hon. Friend the Member for Pudsey (Sir G. Shaw) has expounded so eloquently.
The fact is that, when it comes to level playing fields, the Chancellor has already conceded that there are some situations in which it is necessary to have special help, as exemplified by enterprise zones and the 100 per cent. investment allowance which, in essence, is what my hon. Friend the Member for Pudsey argues ought to be extended to the shipping industry. So there is no great point of principle here which has not already been conceded by the Treasury.
There is, however, as I know from my own experience, always some danger, as far as the Treasury is concerned,

that this will open the floodgates and that further appeals of this sort will be made. The Treasury will ask whether it is possible to ring-fence the particular thing for which hon. Members are putting forward a case. It is clear to me that the shipping industry is more an international market than any other that one can think of and that it is different from petroleum refining or the chemical industry which, we are told, would immediately apply for this kind of grant.
It is particularly appropriate that my hon. Friend should have moved the amendment in the way that he did, because much of the problem with shipping is that one must invest in a very large lump of equipment at one go and this makes it difficult to raise the necessary amount of money in one go. That is why it is so much easier to do so if one has a front-end-loaded investment allowance.
It is not necessary for me to go into the importance of invisible earnings, but despite their importance they too have been declining, particularly with regard to the insurance industry, for example, and to the role of the City generally. Much of the strength of the City, however, has always been based on the fact that we have been a major shipping nation, so this measure will help not only the shipping industry but also the position of London as an international centre.

Mr. Cyril D. Townsend: I have listened to my right hon. Friend's comments with interest and in total agreement. He has covered the strategic aspects of shipping. Can he find time to say a word about the important defence implications? We are an island nation with responsibilities worldwide and we rely on having our own merchant fleet to carry out some of those responsibilities.

Sir Terence Higgins: My hon. Friend is absolutely right. This matter has been debated in the House on a number of occasions and it is exemplified particularly by national defence, which is very important, so I agree very much with what he says.
Turning to the question of cost, there seems to be considerable confusion about the figures. The effect of this amendment is entirely to work through cash flow. The cost to the Government will simply be the cost of financing the reduction of the tax revenues in the early years until such time as the tax revenues increase in the later years of the asset's life. There is no grant as such—merely a cash flow problem—and the cost of financing that cash flow in the intervening time. That profile is very desirable in some ways in the first years because we are at present in a deep recession and the need for raising revenue will increase as the recession ends and the economy is eventually in danger of overheating.
Over the kind of time scale that we are talking of in this amendment, that pattern of cash flow could be quite appropriate. Eventually, if the level of investment is maintained, the cash flow reaches equilibrium and one would not see any great variation over time.
The crucial point, therefore, is what the cost is, and this is where I have some trouble. I have discussed the matter with my hon. Friend the Economic Secretary and, more briefly, with the Chancellor. The figures that they are bandying around of the cost of the amendment seem to be far in excess of those that the Chamber of Shipping is estimating. We must take the question of costs into


account and it is very important that we should sort out this contradiction and, if necessary, return to the matter on Report so that we can go into it in greater depth.
These figures still seem unresolved, but my understanding from the Chamber of Shipping is that the average cost for each year of investment over, say, five years is likely to be £20 million or £30 million. That is not at all unrealistic for the Treasury, given the benefits which are likely to accrue. As I have already said, it is effectively what is the discounted cash flow, the net present value of the interest forgone over the period when the tax will work its way through. It is not, of course, on the whole of the investment, because we already have an investment allowance of 25 per cent., as I understand it. It is the difference between 25 per cent. and 100 per cent.
9.15 pm
I hope that my hon. Friend the Economic Secretary will either accept the figures that the Chamber of Shipping has put forward, which I believe to be correct, or give a very clear undertaking that he is prepared to reconcile them and discuss the matter in much greater depth with a view to accepting the proposals made once this point has been sorted out. But, of course, I am talking of the gross cost.
The net cost to the Exchequer is likely over time to be much less, because we have here an investment in new ships. The British register is getting very old. It is inefficient in comparison with newer vessels. Consequently, if it changes from old vessels to new, that in itself, with no change in the level of demand worldwide, is likely to increase the profitability of the companies concerned and in turn the revenue that the Treasury derives. Therefore, there is a net increase in the revenue that the Treasury is likely to get over time with regard to this series of assets.
I understand that, if the register goes on declining at the present rate, it will disappear altogether by 2010. But the ships on the British register may disappear even by the time of the next general election, which we hope is a long way off. Therefore, this is something that cannot be deferred indefinitely, even if some time is needed to sort out the precise figures and exactly what needs to be done, because it is abundantly clear that something needs to be done with regard to the British shipping industry.
I believe that the proposals the industry puts forward to limit this arrangement for, say, a five-year period while negotiations on reducing unfair competition worldwide can continue are in essence very moderate. The cost anyway depends only on there actually being investments, except in a very trivial amount; it is only if the companies invest that there is any deferment, even, of taxation.
Surely more investment is fundamentally what we need. Certainly, for the balance of payments it is very important. As the economy recovers, the balance of payments will clearly become an increasing rather than a diminishing problem.
For all those reasons, I hope that my hon. Friend the Economic Secretary can give a sympathetic response. I believe that I am right in saying that in the past he has made some speeches not dissimilar from the one that I am now delivering, and therefore it is not unreasonable to hope that we shall receive a sympathetic response from him this evening and that at the very least we shall return to this matter very soon—as soon as we can sort out the

figures. I believe that the Chamber's figures are right and that the case for the amendments and assistance for the industry is very strong.

Mr. Nick Harvey: I shall speak briefly in support of the amendment, which was moved strongly by the hon. Member for Pudsey (Sir G. Shaw), who told us that the scale of decline of the British shipping industry was such that we were now 33rd in the world. The right hon. Member for Worthing (Sir T. Higgins) recalled a time when we were first and foremost in the world. Even as recently as 13 years ago we ranked fourth in the world, so the decline has been very speedy.
Over the same period, the shipping industry's contribution to the balance of payments has halved. The Chamber of Shipping has said that in the past two years over 17 companies have crewed out, flagged out or folded.
I underline the comments about the need for the Government to act urgently now. Whatever the precise date of the ultimate collapse—whether by the next general election, by the year 2000 or even by the year 2010—there is clearly a desperate worry which is closing in on us quickly. We can all agree that thousands of jobs would go, that there would be an implication for the balance of payments and that there would be knock-on effect on the shipbuilding industry and on many other industries. The hon. Member for Barrow and Furness (Mr. Hutton) spoke with an obvious constituency interest in the future of shipbuilding. On a very much smaller scale, I have constituents who cross the River Torridge to work at the Appledore shipyard.
The relative decline in the British shipping industry must have something to do with the unequal tax treatment of the shipping industry in various countries. I echo the words of the right hon. Member for Worthing (Sir T. Higgins). The Liberal Democrats would like there to be a concentration on getting other countries to remove the advantages that they are giving. However, we must be realistic. That process will take time. Even within the European Community, decision-making is slow, and we must remember that many of the key players are not members of the European Community.
We must be realistic about the time that the process will take, and we must see the matter in the context of the urgency of our problem. In the meantime, it is essential for the Government to do someting about the problem. If they act too late, the whole industry will be gone. It must be appropriate for the Government to intervene. When other countries have done so, their shipping industries have responded and have improved—America and Japan being two of the most recent examples.
I have no way of knowing whether the Government's estimates of what the proposal would cost are right, or whether the estimates by the Chamber of Shipping are more likely to be right. We must cost the proposals and the benefits that would accrue from them. We have already heard that the shipping industry internationally is expanding.
In the context of the widespread concern in the industry and among the public about the practice of flags of convenience, especially in the wake of the Braer disaster, the shipping industry in Britain must be in a strong position, with its reputation for being modern, efficient and safe. It needs the aid that the amendment offers to take advantage of that opportunity. The fleet could easily


double if it was given such assistance. Whatever the cost, there would surely be a long-term gain, even to the Revenue.
As has been said, the Government recognise various areas as needing special help, one example being regional enterprise initiatives. The right hon. Member for Worthing was right to point out that the enormous outlay on the purchase of a ship which must be made in the first year should be addressed through capital allowances at the same time, rather than being forced to be written off over nine years, as is the present arrangement. The Government may wonder whether they can afford to accept the amendment. I simply ask whether they can afford not to. The impact on industry would be immediate and dramatic. In five years, the average age of the fleet could have halved. Earnings would have increased, employment would have expanded and the Government would have benefited through an improved contribution to the balance of payments.
The right hon. Member for Worthing was too modest in his anticipation of what the proposal might mean in terms of tax revenue. If we forecast far enough forward, we can see that it would bring a gain to the Revenue and that it would also make a contribution to our defence capability, as other hon. Members have said. The amendment is well measured and I have pleasure in pledging my colleagues' support for it.

Mr. Nigel Waterson: I am delighted to have the opportunity to speak in support of the amendments. I declare an interest as a solicitor who has practised for many years in maritime matters. In my time as a maritime lawyer, I have witnessed a steady decline in the British merchant fleet and in its position in the world. Other colleagues, notably my hon. Friend the Member for Pudsey (Sir G. Shaw) and my right hon. Friend the Member for Worthing (Sir T. Higgins), have eloquently explained the importance of British shipping to this country. The industry contributes £2.3 billion net a year. It employs about 20,000 seafarers and a further 30,000 ashore.
It is important to have this debate again this year because, as has been explained with great detail and eloquence, it will be unnecessary and academic in a few years' time because the British merchant fleet will no longer exist. If one takes a straight line extrapolation, at its present rate of attrition, the fleet will effectively have disappeared by the year 2010.
The shipping industry is emphatically not a smokestack industry that is simply looking for handouts. We have already heard at some length about the level playing field difficulty, which applies to this industry more than most others, and the extent to which other countries, including some notable shipping nations in the European Community, provide favourable but unfair fiscal regimes for their ship owners and operators. As my right hon. Friend the Member for Worthing said, my hon. Friend the Economic Secretary is not unsympathetic to the British shipping and shipbuilding industry. If my hon. Friend feels that the amendments do not achieve the purpose for which they are intended, the Chamber of Shipping and other groups representing the British shipping industry will be more than happy to continue discussing other options.
The 40 per cent. first-year allowance is welcomed, but it is not enough. We must do everything that we can to give our shipowners the sort of competitive edge that other

countries have given their shipowners. The intent of the amendments has been explained, as one might expect, with great skill by a former Treasury Minister, my right hon. Friend the Member for Worthing. He said that the benefits could end up as more or less self-financing and the real net cost for each year of investment would range between possibly £20 million and £30 million.
If there is a genuine difference of opinion between Treasury officials and Chamber of Shipping officials about those figures, let them continue the discussion and debate. Naturally, the figures are based on certain assumptions. Essentially, they expect the current level of ordering—about 34 ships—to double. That also takes into account another possible amendment to the Budget relating to roll-over relief, but I will not refer to that amendment in this debate.
There are many arguments why the British merchant fleet needs help. We have heard the important arguments about the balance of payments and the strategic and defence issues. I shall concentrate on only one argument on which I can speak with considerable personal knowledge—the contribution of related activities to shipping, especially in the City of London.
Apart from the contribution made by British shipping in carrying not only our goods but those of other nations across the seas, the other activities to which I refer earn a further £1.5 billion net for the balance of payments. In the City of London, we take care of more than half the world's marine insurance, protection and indemnity coverage, chartering and cargo broking, ship finance and management, arbitration, law and consultancy services, the classification societies and so on.
Recently, we have had debates in the House about the importance of the commercial court in London in terms of attracting litigants from abroad. A substantial part of the business of that court derives from London's reputation as the prime maritime centre in the world. I know from personal experience that other centres, such as New York, Piraeus and so on, cannot come close to challenging the pre-eminence of London in this field.
One of the most dramatic statistics is that the number of British seafarers is shrinking alarmingly—there may be only 5,000 active officers by the year 2000. We need 1,300 new officer cadet entrants a year, yet we took only 343 in 1992. That means that fewer and fewer in due course will come ashore either to pass on their expertise to others or to enter the support and service sectors that I have described.
In other words, inevitably the shrinking of our national fleet will sooner or later have a knock-on effect on other important parts of the economy. How can we remain a leading maritime and financial centre when we are no longer truly a significant maritime nation? To take one example, how can we expect to influence the new international rules drawn up to combat the possibility of another Braer disaster around our shores if we are no longer a major player in the maritime world?
I urge my hon. Friend the Economic Secretary to continue a dialogue with the British shipping industry and seize the unprecedented opportunity of two Budgets in one year to put the matter right—if not today, later this year.

Mr. Geoffrey Hoon: I support amendments Nos. 37 and 38, to which my name is attached. The amendments are designed to encourage the purchase of new ships by allowing those who order ships to take advantage of 100 per cent. capital allowances. I believe that the amendments can help to stimulate a much-needed renewal and expansion of the British maritime fleet, perhaps to the extent that the present level of ordering of about 34 new ships each year could be doubled.
The right hon. Member for Worthing (Sir T. Higgins) talked about the costs to the Revenue. It is obviously right that we should concentrate on that to some extent. I shall return to the figures that he mentioned later. It might assist the Economic Secretary in assessing the likely cost of the measures to the Revenue if he worked with the figure that I suggested—which the hon. Member for Eastbourne (Mr. Waterson) also suggested. An assumption that the measure might double the ordering of ships—another 30-odd ships each year—is a reasonable basis on which the Economic Secretary might calculate the cost to the Revenue.
The hon. Member for Pudsey (Sir G. Shaw) set out in some detail the arguments for amendments Nos. 37 and 38. I shall endeavour to avoid repeating the statistics that have been set out clearly already. I might try to add one or two of my own.
It is clear that there has been an inexorable decline in both the United Kingdom-registered and United Kingdom-owned fleet. The figure that I find significant is that, in 1975, we had about 9 per cent. of the world total. That figure had declined by 1991 to a mere 1 per cent. Clearly, if that decline continues at that rate, the alarming conclusions which others have reached this evening that the fleet will disappear fairly quickly is inevitable.
The disappearance of the British merchant fleet was well discussed in a report by the Transport Select Committee as long ago as 1987. It set out several arguments for maintaining a United Kingdom-registered fleet, which follow on from the various speeches that have been made this evening.
The Select Committee talked about the impact on trade of a serious reduction in the fleet. It talked about the danger in both defence and economic terms of being entirely dependent on others to move the United Kingdom's imports and exports. That matter was referred to in an intervention. It has not so far been discussed in detail in the debate, but we should have regard to it.
The Select Committee referred also to the contribution made by shipping to the balance of payments. The Chamber of Shipping estimates that British shipping contributes some £4 billion gross to the United Kingdom's foreign earnings and £2.4 billion net. It comments that British shipping underpins the City maritime services, which earn more than £1.2 billion net abroad. That, obviously, was the observation made by the hon. Member for Eastbourne (Mr. Waterson).
The figures for the balance of payments are a matter of great concern to the Committee at this stage in our deliberations. Clearly, we are looking at the Chancellor's proposals against the background of a serious balance of payments difficulty. If, in the context of these measures, we can improve that situation, even if it is a modest improvement, surely it should be welcomed.
Without repeating the various statistics that have already been given about the decline in the maritime fleet, it might be worth asking why that decline has taken place when other countries seem to have been able to stabilise their fleets and, in some cases, to increase them
All our major European competitors appear to have been able to establish attractive fiscal regimes that have encouraged investment in shipping. That is certainly the case in Denmark, Germany, Greece, Norway and Sweden. There has been a judicious use of tax incentives—not grants but a favourable fiscal environment, by means of which those countries have been able to reverse the decline in size of their fleets.
Not only have they been able to reverse the decline in size of the fleets—the numbers of ships—but, more importantly, with regard to the present problems of the United Kingdom maritime fleet, they have significantly improved the aid profile of their fleets. That is crucial where new technology is increasingly used, particularly to reduce operating costs for shipping.
It has been clearly said that one of the key problems faced by owners in the United Kingdom is that, as they are competing in a world market with higher technology vessels, they are caught in a situation in which their high operating costs and consequentially relatively low revenue means that they are, in effect, forced either to sell or to scrap their existing ships. The idea of the amendments is clearly to allow those fleets to be developed, to purchase new ships, so that we can more effectively compete in what is clearly a vigorous and competitive world market.
I said that I would return to the question of costs, which has already been covered in some detail by the right hon. Member for Worthing. I simply want to endorse the figures that he gave. The Chamber of Shipping has suggested that the scheme might cost about £70 million gross in the first year. Obviously, the cost of the scheme will depend on how successful it is, but if the net costs that the Chamber of Shipping has set out are between £20 million and £30 million a year, it is difficult to see how the Government can resist such a sensible approach for the United Kingdom shipping fleet.
When we are considering those costs, I invite the Economic Secretary to the Treasury and the Government to put on the scales the benefits to the Revenue that are likely to arise from the economic advantages that the country will derive from a renewed and expanded British maritime fleet. Clearly, if we have a more competitive fleet —that is the argument—a fleet that is newer, more effective and based on the use of high technology, it will contribute higher tax revenues to the Exchequer. It would be a consequential benefit to our balance of payments.
My hon. Friend the Member for Barrow and Furness (Mr. Hutton) talked about the prospect of increased orders for ships and maritime equipment within the United Kingdom, and that clearly would be a consequence of the proposals. In addition, the hon. Member for Eastbourne talked about strengthening the United Kingdom's maritime services, particularly in the City of London. For all those reasons, we should support amendments Nos. 37 and 38 as a significant contribution to Britain's economic well-being.

Mr. Mark Wolfson: I am grateful for this opportunity to make a brief contribution to the debate, which could not be described as anything other than thoroughly thoughtful and measured. I hope that my right


hon. and hon. Friends on the Treasury Bench will take into account the concern, interest and determination of the Committee for a change in present policies.
When I last spoke on the issue in July, the debate focused on the defence implications of the decline in the British merchant fleet. As part of the justification for these amendments, hon. Members have already made that point. Nevertheless, I want to emphasise it again.
We are coming very close to the time when our defence strategy could be gravely at risk due to our inability to sealift our forces to where they are required in the world, because we do not have British flag vessels for that purpose. This argument has gone on for more than a decade.
My hon. Friend the Member for Pudsey (Sir G. Shaw) asked for a sympathetic reaction to the amendment from those who sit on the Treasury Bench. I, too, ask for a sympathetic reaction. I have little sympathy For the Government's position because of their inaction on this issue, despite repeated warnings from many hon. Members for many years about the dangers of the inexorable decline of the British merchant fleet.
I shall not re-emphasise how dangerous that decline is, other than to make the point that 10 years ago, on the eve of the Falklands war, the British flag fleet was 10 times larger that it is today. There has therefore been a dramatic drop over a decade. It must not continue. If it is not to continue, we need a change of policy. I am giving away no secrets when I say that the recently retired First Sea Lord has flagged up, as other senior naval officers have done over many years, the dangers, from the defence aspect, of allowing the decline to continue.
On that aspect, and as justification for the amendment, which we support, my view is that this is a classic case of pass the parcel between different Departments of State. The Ministry of Defence is concerned about the sealift issue. That was confirmed last summer by the Minister of State for Defence Procurement. The Department of Transport is the sponsor Department for the industry, and the key to any resolution of the issue is the Treasury. It is Treasury Ministers whom I have firmly in my sights tonight. They hold the key to the resolution of this problem. They are friendly sights, but they are quite beady.
My right hon. Friend the Prime Minister has made it clear that part of our policy for recovery is to give a higher profile to manufacturing industry. That is the Prime Minister's commitment, but action has to follow words. Many other hon. Members suggested that this amendment would also have a beneficial effect on the shipbuilding industry, but in a thoroughly sensible way. It would not, as happened in the past, result in over-capacity. That point was made by my right hon. Friend the Member for Worthing (Sir T. Higgins).
I emphasise, too, the key importance of what was said by my hon. Friend the Member for Eastbourne (Mr. Waterson) about the effect on invisibles that the rundown of the merchant fleet will have. As he said —I could not make this point more strongly in support of his argument —we cannot expect to maintain a viable City-linked, City-based shipping service if we do not have a shipping industry: the two go together. Many people who are involved in shipping in the City are effective in their jobs because they have seagoing experience, and we cannot have one without the other.
I want to be brief, and I do not want to labour points that have already been made. I emphasise to my hon. Friend the Economic Secretary that I am looking for a commitment from him on a minimum of three things: first, that the Treasury is at last seized of the need to arrest the decline in the British merchant fleet; secondly, that he will give further consideration to the arguments that have been deployed tonight, and that we shall return to the issue on report; thirdly, that he and my right hon. Friend the Chancellor will meet representatives of the industry to discuss these issues between now and Report. That is what I look for; it is the minimum that can give me satisfaction as I speak in support of the amendment so clearly moved by my hon. Friend the Member for Pudsey.

Mr. David Shaw: I begin by congratulating my hon. Friend the Member for Eastbourne (Mr. Waterson) on, I believe, his maiden shipping debate speech. Hon. Members who advocate the cause of British shipping welcome his joining our debates and the expertise and experience of the shipping industry that he will bring to bear on the issue.
I have, as many hon. Members will know, a strong constituency interest, and over the years my name has been attached to a number of amendments similar to this one. Indeed, I have had the honour of moving amendments to previous Finance Bills, and I advanced the case in an Adjournment debate last year.
The United Kingdom shipping industry is of much importance to this country; we cannot let it deline. Its recent decline accelerated under the previous Labour Government. We all recall Labour's subsidies for Polish ships and its support for the United Nations Conference on Trade and Development code, which resulted in the British shipping industry not getting its fair share of the market. We also recall the Labour Government of 1974–79 trading with socialist countries that subsidised their shipbuilders. Indeed, my right hon. Friend the Member for Worthing (Sir T. Higgins) spoke of the socialist countries that had subsidised their shipping and shipbuilding industries.
The Government and the Conservative party saved the United Kingdom's car industry. We transformed the car industry, which was in terminal decline under Labour. Why cannot we now tackle the shipping industry? We rescued and rebuilt the car industry, and the time has come to rebuild British shipping.
Many jobs are at stake—not only the direct jobs on the ships and, in my constituency, on the ferries, but jobs in ports, in legal services, in ship brokers, in insurance, the lawyers, accountants and all the many other jobs that are directly and indirectly dependent on the industry. The Government could use this issue to show that they intend to tackle unemployment in London and the south-east. Unemployment in London is high compared with the rest of the country, and many of the jobs involved in the shipping industry are based in London and the south-east.
The amendment may call for 100 per cent. allowances, and the Government may be nervous that 100 per cent. would be excessive, but the answer is that surely we should go for some improvement on the present 25 per cent. writing-down allowance. The purpose of the amendment is to draw attention to the plight of the industry. Hon.


Members have already mentioned the age of the fleet, and that problem is getting worse. If nothing is done, there will be a significant reduction in the size of the fleet.
The Government have always had to recognise that there is a problem with the balance of payments if we have fixed exchange rates. We may now have floating exchange rates, but we still have a significant import bill, and shipping could play a major part in reducing the effect of those imports on our balance of payments. The importance of defence, and the fact that we still need a good merchant marine for defence purposes, have also been mentioned.
Why must we change capital allowances above all else? I have answered that question before and I shall answer it again. The Treasury must read the report of the Federal Reserve Bank of New York following the 1988 changes to capital allowances, which makes it clear that the United Kingdom is most competitive in many areas—that is why we get foreign investment here—but that capital allowances are the one factor on which we are not competitive.
The shift in capital allowances went too far in the wrong direction, and it is now necessary to reverse it. In his autumn statement, the Chancellor did reverse it, but for one year only. The shipping industry needs that change to be made permanent.
As my right hon. Friend the Member for Worthing (Sir. T. Higgins) said earlier, a ship represents enormous capital expenditure which, compared with expenditure in other industries, is out of all proportion in terms of the revenue earned. A ship is a very expensive item. The new ferries that P and O has introduced in my constituency cost nearly £100 million apiece. If we are to invest in such shipping and to create the jobs that result, we must recognise that the capital costs and the capital risks, that a businessman is asked to take are enormous.
We must recognise that the cash expenditure and the tax allowances are out of synchronisation. The cash expenditure is incurred on day one, whereas the tax allowances can take ten or twenty years to come into play. Even after four or five years there are significant tax allowances that are still not available. We must bring about a much fairer position—

Mr. Bowen Wells: Is my hon. Friend asking us to subsidise the shipping industry?

Mr. Shaw: We are not asking for subsidies. What I ask for is not a subsidy; it would simply bring the risk/reward ratio into line with what it should be. I shall show my hon. Friend the graph and the statistics, and the report of the Federal Reserve Board of New York, and he will see that there would be no subsidy. Risk and reward would simply be brought back into better balance.

Mr. Wells: Let my hon. Friend admit to the Committee that he is asking for competitive subsidy for the shipping industry. That is what he is arguing for; let him be honest about it. That is not the right way in which to conduct a shipping industry in this world. Surely he must admit that?

Mr. Shaw: I reject that suggestion. If I insisted that a 100 per cent. allowance was the only solution, perhaps such a measure might reach a point at which it amounted to a subsidy, but I do not believe that that is the only

solution. I ask only that it be recognised that the shipping industry has to invest more money in capital risk, recovery of which probably takes a longer time than recovery in any other industry, and that the ratio of labour costs to capital costs is vastly different.
Because there is a different risk/reward ratio, it must be accepted that there should be different tax treatment. One hundred per cent. of labour costs are written off in the year in which they are incurred; it is only capital costs in the industry that are written off over a long period.
As has already been said, when we compare the United Kingdom with the rest of Europe, we realise that there is not a level playing field in the shipping industry. I accept that we are in danger of having to go down the subsidy route because other nations are subsidising their industries out of all proportion to what is required. That is why I say that it may be necessary to have a 100 per cent. allowance for a short term so that we may have a level playing field where we can compete with the rest of Europe.
I should prefer an allowance structure that reflects the risk/reward ratio. I do not believe that, in the long term, it will be necessary to go to 100 per cent. However, we need more than the 25 per cent. writing down allowance, which does not reflect the risk/reward ratio. The report of the Federal Reserve Board makes it clear that it does not work.
I know that the Government are listening to this case as, within the past month, I took representatives of the Chamber of Shipping to see the Secretary of State for Employment. My right hon. Friend was immensely sympathetic. She listened to the problems and is making sure that her civil servants work with the shipping industry to see if a solution is possible.
I have asked for a meeting with the Chancellor. I hope that the Economic Secretary is aware of my request, that he can confirm that the meeting is to take place in the near future, and that he will attend. Such a meeting is necessary. We must put across the case for the shipping industry, and action must be taken. I hope that my hon. Friend will confirm that he is on line to take in the information that we want to bring to him. I look forward to his comments, and I commend the amendment to the Committee.

Mr. Nicholas Brown: We have had an excellent and very well informed debate on the British shipping industry and on the two amendments that Conservative Members have tabled. The case had been made in very similar terms by the Liberal party, the Conservative party and the parliamentary Labour party. Assistance for the British shipping industry would help our balance of payments. It would improve our invisible earnings and increase tax revenues. Hon. Members have stressed the unique trading position of British shipping as an industrial sector. It trades internationally and operates in a very competitive and highly vulnerable market.
We have heard about the steady decline of the British fleet. My hon. Friend the Member for Ashfield (Mr. Hoon) drew attention to the report of the Select Committee on Transport, which says that the decline in the British fleet is damaging trade. Hon. Members taking part in this debate have pointed out the importance to the Ministry of Defence of ships taken up from trade. Such ships were, of course, available at the time of the Falklands conflict, but if they were needed today they would not be available.
The scale of the problem facing the country today is shown by the fact that, of the approximately 19,000 people


serving in the merchant marine, about 8,500 are officers. It takes four to 10 years to train a Merchant Navy officer. The average of officers is rising. This is a feature not of stagnation in the industry but of quite dramatic decline. It has important implications for the long-term future of the industry and for the future defence of the country.
The hon. Member for Pudsey (Sir G. Shaw) knows something about these issues. As a Minister in the Department of Trade and Industry, he dealt with them. He has said that the decline could be terminal by the year 2000. In the Select Committee, estimates have varied, but only by 10 years either way. There is not much of the industry left. The case for doing something now to help it is overwhelming.
I represent a community that has long-standing connections with the shipping and shipbuilding industries. Indeed, South Shields and North Shields have provided both ships and seamen for centuries. Sadly, their association with those industries has paralleled the industries themselves in their decline. Every hon. Member representing a shipbuilding community will remember how, at the time of the Falklands war, their constituents worked all the hours they possibly could to defend the interests of their country. That was in 1982. Some of those shipyard workers even went to sea with the fleet and served in this conflict. What happened to them? When they returned to this country, most of them were made redundant. A similar fate has befallen merchant seamen. There has been a steady decline.
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As my hon. Friend the Member for Barrow and Furness (Mr. Hutton) pointed out, the quality of engineering work, and the computerisation and high technology aspects of the shipbuilding industry are often misunderstood. Nevertheless, they are important.
Enormous efforts have been made in the shipbuilding industrial sector, yet yesterday the Government effectively closed Swan Hunter on Tyneside. There are no orders, no work and no future for it. There was a management buy-out in 1986. Probably it is impossible for management buy-outs to compete with companies like GEC and VSEL in the industrial sector. Certainly it is impossible for them to compete with the Government in the form of Harland and Wolff.
I remind the House of the bewilderment, the bitterness and the anger felt on Tyneside because of what has happened to its shipbuilding industry. It is also right to assert that the Government should do something now to help, not our shipbuilding industry because that has gone, but the shipping and shipbuilding industry which could be helped by the amendments. The Government should accept the amendments, or there should be a vote.
In the past, we have been sceptical about 100 per cent. capital allowances, because we have been worried about the artificial manipulaton of losses and the offsetting of losses against other obligations to the Exchequer. Those issues are dealt with elsewhere in the Bill, so we need not have quite the same fear.
Conservative Members have hinted at discussions with the Treasury team. Some want discussions before returning to the matter on Report; others want discussions before returning to it perhaps in November. Discussions are likely to be protracted, in view of the attitude of the Chancellor of the Exchequer to such amendments.
If we want to concentrate the Government's mind on the amendments, the way to do so is to insert them into the Bill as an aide memoire. If the Government have better suggestions, they tan put them before the House on Report. We could then consider their suggestions on their merits and compare them with the amendments, which I urge my right hon. and hon. Friends to support.

The Economic Secretary to the Treasury (Mr. Anthony Nelson): May I start by congratulating my hon. Friend the Member for Pudsey (Sir G. Shaw) on the able way in which he moved the amendment and on the compelling and thoughtful debate that has ensued? There is no doubt about the strength of feeling on both sides of the Committee about the importance of the British merchant fleet, and of sustaining it for the future and recognising the serious difficulties and problems through which it has sailed in recent years. Tonight I am charged with the difficult responsibility—[Interruption.]

The First Deputy Chairman of Ways and Means (Mr. Geoffrey Lofthouse): Order. The Chair is having great difficulty in hearing the Minister. If we could have a little quiet, it would be helpful.

Mr. Nelson: I am charged with the difficult responsibility of recognising and sympathising with those real concerns, but also of setting out clearly to the Committee the primacy of dealing with the state of public finances which underlies the Budget strategy. I shall return to that in a moment. I shall also deal briefly with the contributions of all hon. Members, but I wish first to put on record a few statements about this important issue which has become something of a hardy annual in Finance Bill debates.
The amendment would introduce one leg of the industry's proposals, namely, 100 per cent. first year allowances for money spent on ships. We previously made it clear that we recognised the important contribution which shipping makes to the economy and the central role which industry can be called upon to play —[Interruption.]

The First Deputy Chairman: Order. I have just appealed for Members to give the Chair and the Committee an opportunity to listen to what the Minister is saying. If Members beyond the Bar want to have discussions, will they please leave the Chamber?

Mr. Nelson: The Government have, over successive years, done things to help the British Merchant Navy. They are doing things in this Budget and they have an open mind for the future, as and when the opportunity arises, to continue to sustain and help the industry. Let me set out the facts.
Since 1979 we have introduced a number of measures, including some on the tax front, to help the industry. First, in 1985 we brought forward the point at which allowances for machinery and plant could be claimed by businesses. Since then, shipping companies have consequently been able to claim relief for new ships from the date when the money was spent rather than from the time when the vessel is brought into use. This is particularly valuable to ships which take time to build.
Secondly, we have specifically helped shipping companies by giving greater flexibility in the use of writing down allowances. Before 1985, allowances for new ships could be postponed and taken in later years whenever it suited the shipowner to do so. In 1985, following


representations from the shipping industry, we extended this important concession to cover purchases of second-hand ships. No other industry receives such concessions.
Thirdly, we have twice loosened the requirements which seafarers must meet to be able to claim exemption from United Kingdom tax. They need now spend only six months abroad to qualify for this concession—an arrangement which is more generous than that enjoyed by any other United Kingdom citizen working overseas.
Fourthly, on corporation tax, we have greatly reduced the rates of tax on company profits, from 52 per cent. in 1984 to 33 per cent. We have also introduced very generous arrangements enabling the carrying back of profits to be set against losses over the previous three years.
As for non-tax measures, we have put in place a succession of changes aimed at helping shipping businesses to compete internationally: grants towards the cost of merchant officer training; the funding of the Merchant Navy reserve; and financial assistance with the cost of transporting British crews to and from distant waters. As the Committee will know, next week a very important Bill —the Merchant Shipping (Registration) Bill—will come before the House of Lords which will substantially complete the implementation of the measures agreed by the 1990 joint Government-industry working party.
That list demonstrates the help that we have given to all businesses, and the additional further assistance that we have given to shipping. What we have not been prepared to do is to give concessions at an unjustified level. This amendment, clearly in our view, is just such a measure. There are a number of reasons which I must enunciate for saying that. The arguments so ably presented by my hon. friends deserve the response of the Government, and I will seek to put the Government's arguments.
First, the Government argue that the amendment would be very expensive, costing, on the Chamber of Shipping's own figures, between £80 million and more than £100 million each year in terms of tax revenue forgone—and this of course would fall in the years when finances were at their tightest and taxes generally were having to be raised.
Secondly, the extent to which it would achieve the industry's objective of stimulating increased levels of investment is highly questionable. It is worth remembering that when 100 per cent. first year capital allowances were previously available for investment in shipping, between 1970 and 1984, they did nothing to prevent a significant decline in the size of the United Kingdom merchant fleet—from 32.2 million gross registered tonnes in 1975 to 13.3 million in 1985.
Since our changes to the business tax regime in 1984, we have seen an increase in investment in ships by United Kingdom-owned companies. It is very important to appreciate that. We hear a great deal about the rundown of the British merchant fleet, but on the money side the fact is that in 1988 investment in the shipping fleet was some £45 million, but it rose to £402 million in 1991. This suggests that the remedy for the industry's difficulties must lie outside the fundamental changes to the tax treatment which the industry is seeking.
Thirdly, the amendment would do nothing to stop flagging out. That is because tax allowances are tied to ownership and not to registration, so there would be nothing to stop United Kingdom companies taking the subsidy and continuing to operate the ships from offshore registers. Moreover, such a measure would clearly run counter to the thrust of general tax policy.
Tax breaks for shipping alone would distort the market and resources would be diverted from inherently more profitable investment, which, taking the economy as a whole, might not be a sensible use of the limited financial resources available.
Other countries may choose to subsidise their shipping industries, although it has to be said that none of those countries does so to the extent of giving 100 per cent. first year allowances for capital investment. Our priorities are to ensure that the tax system is fair, that it provides a favourable climate for all businesses to operate in, and that profitable investment is properly rewarded.
Even under the current system, the United Kingdom has a particularly generous system of capital allowances. When the first year allowance for machinery and plant reverts to 25 per cent. in November, expenditure can be written off for tax purposes over seven to eight years, and will still be significantly higher than the rate of economic depreciation for most business assets, particularly for ships, which generally last for much longer than the tax system allows.
The industry, therefore, is already getting a particularly good deal from the present system, and the tax it pays on its profits is the lowest in Europe; it is also lower than that in Japan and the United States.
I turn briefly but specifically to the contributions of my hon. Friends. My hon. Friend the Member for Pudsey said that time is of the essence. He and my hon. Friend the Member for Bexleyheath (Mr. Townsend) stressed the defence implications and the importance of the shipbuilding industry, a point emotionally and justifiably made by the hon. Member for Newcastle upon Tyne, East (Mr. Brown) on behalf of his constituency and the official Opposition.
The hon. Member for Barrow and Furness (Mr. Hutton) called for a strategic overview. I acknowledge the importance of the industry in his constituency, which I know well, and point out the help that is available through the home shipbuilding credit guarantee scheme and the shipbuilding intervention fund to assist the industry.
The hon. Gentleman and the House should acknowledge that there are three related but quite separate issues: the shipbuilding industry, the shipowning industry, and the British register of shipping.

Dame Elaine Kellett-Bowman: On a point of order, Mr. Lofthouse. It is utterly impossible to hear a word that is being said.

The First Deputy Chairman: Order. I have appealed to the Committee twice to give the Minister the opportunity to be heard. My appeal appears to have fallen on deaf ears. Once again I appeal to all hon. Members, especially beyond the Bar. If they want to talk, they should leave the Chamber. Those on both Front Benches are not setting a great example.

Mr. Nelson: I am anxious to address with expedition but with courtesy the points raised by those who contributed to this important debate.
My right hon. Friend the Member for Worthing (Sir T. Higgins) rightly referred to the high initial capital cost of ships. We have a generous system of writing down tax allowances, especially with the 40 per cent. enhanced tax allowance introduced in the clause. It will enable people to claim back more than 60 per cent. over two years and, in any case, the writing down allowance of some 25 per cent. is much faster than the rate of depreciation of the real value of the ships.
With regard to the difficulties that my right hon. Friend and others flagged up about differences between the computations of the Chamber of Shipping and the Government, our assessments of the yields forgone and the cost of the measures are based on the figures presented by the Chamber of Shipping which suggested to us that the net cost per annum would be about £30 million to £45 million a year over five years. That is on a net basis. taking account of the guesstimate assessment of income that would accrue from the investments that were made discounted back to a present value basis. If that is not done, the yield cost rises to between £80 and £115 million a year. I believe that the Chamber of Shipping would agree those figures.
The measure adds up to a significant cost, about £380 million over and above the £700 million relief which the Government are providing.
I am the Treasury Minister whose prime responsibility is to sell gilt-edged securities and raise funding through the Department of National Savings. Given the size of this year's PSBR, I have a big enough job on my hands without adding to it significantly. We are providing some £700 million of relief; an additional cost of some £380 million over the next five years would be difficult to sustain.
The hon. Member for North Devon (Mr. Harvey) said that we must act. Like others, he spoke of foreign competition and the balance of payments. I acknowledge that the balance of payments, and the gross inflows of money that have been so important to us in the past, provide the basis of one of the most persuasive arguments in favour of the amendment.
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My hon. Friend the Member for Eastbourne (Mr. Waterson) spoke of the shipping industry's importance to the economy, reminding us that some 30,000 people were indirectly employed in it. He and others pointed to its association with professional industries in the United Kingdom; but they, too, rely not only on indirect capital allowances to the British merchant fleet, but on the health and vibrancy of the British economy—on low tax rates and sensible management. They rely on Government to provide a climate in which they can prosper and attract professional business from all over the world.
The hon. Member for Ashfield (Mr. Hoon) also spoke of international competition. He asked why the British fleet had declined. I can provide no better reference than the speech of my hon. Friend the Member for Dover, who cited some of the reasons for that decline.
My hon. Friend the Member for Sevenoaks (Mr. Wolfson) said that the country's defence strategy would be gravely at risk unless we acted now by providing enhanced capital allowances to help the industry. As was pointed out during a debate in July in which my hon. Friend took part, Operation Granby in the Gulf was extremely successful: we were able voluntarily to charter some 109 foreign vessels, and only five United Kingdom vessels. My hon.

Friend the Minister of State for Defence Procurement has made it clear on behalf of the Government that we can mount such operations, that we have been successful, and that we believe that, if necessary, we could do so again.
My hon. Friend said that, nevertheless, the industry had declined over 10 years, and that that must not be allowed to continue; and he asked me for a commitment that I would listen. I hope I have shown that I have done that. He also asked me for a commitment that I would be prepared to speak to the Chamber of Shipping about the matter in the immediate future. I am more than happy to extend such an invitation, and to meet the Chamber of Shipping.
It is not for me to determine what issues come up on Report, but I am more than willing to concede that it is my responsibility to listen, learn and pay attention to consultations, as I have done during the debate.
For all those reasons and more, I urge all my hon. Friends to understand that we must concentrate on tackling the state of our public finances to ensure that the deficit is tackled without hindrance to recovery. We cannot do that if, in clause after clause, we add to the amount that we must borrow: that is to put off until tomorrow problems with which we must deal today. Although we may not be able to go as far as some would like in helping the industry today, we have a creditable record.

Sir Giles Shaw: I have listened carefully to the speech of my hon. Friend the Economic Secretary. He has agreed to meet the industry. Will he agree to examine the question of the maritime enterprise zone and other measures to see whether they are acceptable? Provided that he discusses a wide range of issues with the industry, the meeting will be helpful. That is what the industry wants.

Mr. Nelson: I shall be more than happy to entertain any suggestions and ideas that are presented. The Treasury's doors are open. I must point out, however, that, according to our estimates, the three elements of the maritime enterprise zone package would cost between £300 million and £500 million, of which the 100 per cent. allowance would be by far the largest part. It would be quite improper to raise hopes. I must be straight with the Committee, but I will listen to sensible proposals. There may be other times and possibilities. Certainly I give the undertaking that my hon. Friend seeks.

Sir Giles Shaw: I am glad that my hon. Friend recognises that this issue is of extreme importance and one that requires extreme care, good listening and good discussion. In view of the urgency of the matter, I hope that he will agree to do that quickly. If it is possible to make a further statement on Report, or to bring further proposals before the Committee, I hope that he will so do.
In view of these assurances, I beg to ask leave to withdraw the amendment.—[Interruption.]

Mr. Nicholas Brown: rose—

The First Deputy Chairman: No.

Question put, That the amendment be made:—

The Committee divided: Ayes 244, Noes 279.

Division No. 267]
[10.20 pm


AYES


Abbott, Ms Diane
Allen, Graham


Adams, Mrs Irene

Alton, David


Ainger, Nick
Anderson, Donald (Swansea E)


Ainsworth, Robert (Cov'try NE)
Armstrong, Hilary






Ashdown, Rt Hon Paddy
Gilbert, Rt Hon Dr John


Ashton, Joe
Godsiff, Roger


Austin-Walker, John
Golding, Mrs Llin


Barnes, Harry
Gordon, Mildred


Barron, Kevin
Gould, Bryan


Battle, John
Graham, Thomas


Bayley, Hugh
Grant, Bernie (Tottenham)


Beggs, Roy

Griffiths, Nigel (Edinburgh S)


Beith, Rt Hon A. J.
Griffiths, Win (Bridgend)


Bell, Stuart
Grocott, Bruce


Benn, Rt Hon Tony
Gunnell, John


Benton, Joe
Hain, Peter


Bermingham, Gerald
Hall, Mike


Berry, Dr. Roger
Hanson, David


Betts, Clive
Harman, Ms Harriet


Blair, Tony
Harvey, Nick


Blunkett. David
Henderson, Doug


Boateng, Paul
Heppell, John


Boyce, Jimmy
Hill, Keith (Streatham)


Boyes, Roland
Hinchliffe, David


Bradley, Keith
Hoey, Kate


Bray, Dr Jeremy
Hogg, Norman (Cumbernauld)


Brown, Gordon (Dunfermline E)
Home Robertson, John


Brown, N.(N'c'tle upon Tyne E)
Hood, Jimmy


Bruce, Malcolm (Gordon)
Hoon, Geoffrey


Burden, Richard
Howarth, George (Knowsley N)


Byers, Stephen
Howells, Dr. Kim (Pontypridd)


Callaghan, Jim
Hoyle, Doug


Campbell, Mrs Anne (C'bridge)
Hughes, Kevin (Doncaster N)


Campbell, Menzies (Fife NE)
Hughes, Simon (Southwark)


Campbell, Ronnie (Blyth V)
Hutton, John


Campbell-Savours, D. N.
Illsley, Eric


Canavan, Dennis
Jackson, Glenda (H'stead)


Cann, Jamie
Jackson, Helen (Shef'ld, H)


Carlile, Alexander (Montgomry)
Jamieson, David


Chisholm, Malcolm
Janner, Greville


Clark, Dr David (South Shields)
Jones, Ieuan Wyn (Ynys Môn)


Clarke, Eric (Midlothian)

Jones, Jon Owen (Cardiff C)


Clarke, Tom (Monklands W)
Jones, Lynne (B'ham S O)


Clelland, David
Jones, Martyn (Clwyd, SW)


Clwyd, Mrs Ann
Jowell, Tessa


Cohen, Harry
Kaufman, Rt Hon Gerald


Cook, Frank (Stockton N)
Keen, Alan


Cook, Robin (Livingston)
Kennedy, Jane (Lpool Brdgn)


Corbett, Robin
Khabra, Piara S.


Corston, Ms Jean
Kilfoyle, Peter


Cousins, Jim
Leighton, Ron


Cryer, Bob
Lestor, Joan (Eccles)


Cunningham, Jim (Covy SE)
Lewis, Terry


Cunningham, Rt Hon Dr John
Livingstone, Ken


Dafis, Cynog
Lloyd, Tony (Stretford)


Darling, Alistair
Llwyd, Elfyn


Davidson, Ian
Lynne, Ms Liz


Davies, Bryan (Oldham C'tral)
McAllion, John


Davies, Rt Hon Denzil (Llanelli)
McAvoy, Thomas


Denham, John
McCartney, Ian


Dewar, Donald
Macdonald, Calum


Dixon, Don
McFall, John


Dobson, Frank
McKelvey, William


Donohoe, Brian H.
McLeish, Henry


Dowd, Jim
Maclennan, Robert


Dunwoody, Mrs Gwyneth
McMaster, Gordon


Eagle, Ms Angela
Madden, Max


Eastham, Ken
Mahon, Alice


Enright, Derek
Mandelson, Peter


Etherington, Bill
Marek, Dr John


Ewing, Mrs Margaret
Marshall, David (Shettleston)


Fatchett, Derek
Marshall, Jim (Leicester, S)


Field, Frank (Birkenhead)
Martin, Michael J.(Springburn)



Fisher, Mark
Martlew, Eric


Flynn, Paul
Maxton, John


Foster, Rt Hon Derek
Meacher, Michael


Foster, Don (Bath)
Meale, Alan


Foulkes, George
Michael, Alun


Fraser, John
Michie, Bill (Sheffield Heeley)


Fyfe, Maria
Milburn, Alan


Gapes, Mike
Miller, Andrew


Garrett, John
Mitchell, Austin (Gt Grimsby)


George, Bruce
Morgan, Rhodri


Gerrard, Neil
Morley, Elliot






Morris, Rt Hon A.(Wy'nshawe)
Skinner, Dennis


Morris, Estelle (B'ham Yardley)
Smith, Andrew (Oxford E)


Morris, Rt Hon J.(Aberavon)
Smith, C.(Isl'ton S & F'sbury)


Mowlam, Marjorie
Smith, Llew (Blaenau Gwent)


Mullin, Chris
Soley, Clive


Murphy, Paul
Spearing, Nigel


Oakes, Rt Hon Gordon
Steel, Rt Hon Sir David


O'Brien, Michael (N W'kshire)
Steinberg, Gerry


O'Hara, Edward
Stott, Roger


Olner, William
Strang, Dr. Gavin


O'Neill, Martin
Straw, Jack


Parry, Robert
Taylor, Mrs Ann (Dewsbury)


Pendry, Tom
Taylor, Rt Hon John D.(Strgfd)


Pickthall, Colin
Taylor, Matthew (Truro)


Pike, Peter L.
Tipping, Paddy


Powell, Ray (Ogmore)
Trimble, David


Prentice, Ms Bridget (Lew'm E)
Turner, Dennis


Prentice, Gordon (Pendle)
Vaz, Keith


Prescott, John
Walker, Rt Hon Sir Harold


Primarolo, Dawn
Wallace, James


Purchase, Ken
Walley, Joan


Quin, Ms Joyce
Wardell, Gareth (Gower)


Radice, Giles
Wareing, Robert N


Raynsford, Nick
Watson, Mike


Reid, Dr John
Wicks, Malcolm


Rendel, David
Wigley, Dafydd


Robertson, George (Hamilton)
Williams, Rt Hon Alan (Sw'n W)


Robinson, Geoffrey (Co'try NW)
Williams, Alan W (Carmarthen)


Roche, Mrs. Barbara
Wilson, Brian


Rogers, Allan
Winnick, David


Rooker, Jeff
Wise, Audrey


Rowlands, Ted
Wolfson, Mark


Ruddock, Joan
Worthington, Tony


Salmond, Alex
Wray, Jimmy


Sedgemore, Brian
Wright, Dr Tony


Sheerman, Barry
Young, David (Bolton SE)


Sheldon, Rt Hon Robert



Shore, Rt Hon Peter
Tellers for the Ayes:


Short, Clare
Mr. John Spellar and Mr. Andrew Mackinlay.


Simpson, Alan





NOES


Ainsworth, Peter (East Surrey)
Butcher, John


Aitken, Jonathan
Butler, Peter


Alison, Rt Hon Michael (Selby)
Carlisle, John (Luton North)


Allason, Rupert (Torbay)
Carrington, Matthew


Amess, David
Carttiss, Michael


Ancram, Michael
Cash, William


Arbuthnot, James
Channon, Rt Hon Paul


Arnold, Jacques (Gravesham)
Churchill, Mr


Arnold, Sir Thomas (Hazel Grv)
Clappison, James


Ashby, David
Clark, Dr Michael (Rochford)


Aspinwall, Jack
Clifton-Brown, Geoffrey


Atkinson, Peter (Hexham)
Coe, Sebastian


Baldry, Tony
Congdon, David


Banks, Matthew (Southport)
Conway, Derek


Bates, Michael
Coombs, Anthony (Wyre For'st)


Batiste, Spencer
Coombs, Simon (Swindon)


Bellingham, Henry
Cope, Rt Hon Sir John


Bendall, Vivian
Couchman, James


Beresford, Sir Paul
Cran. James


Biffen, Rt Hon John
Currie, Mrs Edwina (S D'by'ire)


Blackburn, Dr John G.
Curry, David (Skipton & Ripon)


Body, Sir Richard
Davies, Quentin (Stamford)


Bonsor, Sir Nicholas
Davis, David (Boothferry)


Booth, Hartley
Day, Stephen


Boswell, Tim
Deva, Nirj Joseph


Bottomley, Peter (Eltham)
Devlin, Tim


Bottomley, Rt Hon Virginia
Dickens, Geoffrey


Bowis, John
Dicks, Terry


Boyson, Rt Hon Sir Rhodes
Dorrell, Stephen


Brandreth, Gyles
Dover, Den


Brazier, Julian
Duncan, Alan


Bright, Graham
Duncan-Smith, Iain


Brooke, Rt Hon Peter
Dunn, Bob


Brown, M.(Brigg & Cl'thorpes)
Dykes, Hugh


Browning, Mrs. Angela
Eggar, Tim


Bruce, Ian (S Dorset)
Elletson, Harold


Burns, Simon
Emery, Rt Hon Sir Peter


Burt, Alistair
Evans, David (Welwyn Hatfield)






Evans, Jonathan (Brecon)
Hughes Robert G.(Harrow W)


Evans, Nigel (Ribble Valley)
Hunter, Andrew


Evans, Roger (Monmouth)
Hurd, Rt Hon Douglas


Evennett, David
Jack, Michael


Faber, David
Jackson, Robert (Wantage)


Fabricant, Michael
Jenkin, Bernard


Field, Barry (Isle of Wight)
Jessel, Toby


Fishburn, Dudley
Johnson Smith, Sir Geoffrey


Forman, Nigel
Jones, Gwilym (Cardiff N)


Forth, Eric
Jones, Robert B.(W Hertfdshr)


Fowler, Rt Hon Sir Norman
Jopling, Rt Hon Michael


Fox, Dr Liam (Woodspring)
Kellett-Bowman, Dame Elaine


Fox, Sir Marcus (Shipley)
Key, Robert


Freeman, Roger
King, Rt Hon Tom


French, Douglas
Kirkhope, Timothy


Fry, Peter
Knapman, Roger


Gale, Roger
Knight, Mrs Angela (Erewash)


Gardiner, Sir George
Knight, Greg (Derby N)


Garel-Jones, Rt Hon Tristan
Knight, Dame Jill (Bir'm E'st'n)


Garnier, Edward
Knox, David


Gill, Christopher
Lait, Mrs Jacqui


Gillan, Cheryl
Lamont, Rt Hon Norman


Goodlad, Rt Hon Alastair
Lawrence, Sir Ivan


Goodson-Wickes, Dr Charles
Legg, Barry


Gorman, Mrs Teresa
Lennox-Boyd, Mark


Gorst, John
Lester, Jim (Broxtowe)


Greenway, Harry (Ealing N)
Lidington, David


Greenway, John (Ryedale)
Lightbown, David


Griffiths, Peter (Portsmouth, N)
Lilley, Rt Hon Peter


Grylls, Sir Michael
Lloyd, Peter (Fareham)


Gummer, Rt Hon John Selwyn
Lord, Michael


Hague, William
Luff, Peter


Hamilton, Rt Hon Archie (Epsom)
Lyell, Rt Hon Sir Nicholas


Hannam, Sir John
MacGregor, Rt Hon John


Hargreaves, Andrew
MacKay, Andrew


Harris, David
Maclean, David


Haselhurst, Alan
McLoughlin, Patrick


Hawkins, Nick
McNair-Wilson, Sir Patrick


Hawksley, Warren
Madel, David


Hayes, Jerry
Maitland, Lady Olga


Heald, Oliver
Malone, Gerald


Heath, Rt Hon Sir Edward
Mans, Keith


Heathcoat-Amory, David
Marland, Paul


Hendry, Charles
Marlow, Tony


Heseltine, Rt Hon Michael
Marshall, John (Hendon S)


Hicks, Robert
Marshall, Sir Michael (Arundel)



Hill, James (Southampton Test)
Martin, David (Portsmouth S)


Hogg, Rt Hon Douglas (G'tham)
Mawhinney, Dr Brian


Horam, John
Mayhew, Rt Hon Sir Patrick


Hordern, Rt Hon Sir Peter
Mellor, Rt Hon David


Howard, Rt Hon Michael
Merchant, Piers


Howarth, Alan (Strat'rd-on-A)
Milligan, Stephen


Howell, Rt Hon David (G'dford)
Mitchell, Andrew (Gedling)





Moate, Sir Roger
Spring, Richard


Montgomery, Sir Fergus
Sproat, Iain


Moss, Malcolm
Squire, Robin (Hornchurch)


Needham, Richard
Stanley, Rt Hon Sir John


Nelson, Anthony
Steen, Anthony


Neubert, Sir Michael
Stephen, Michael


Newton, Rt Hon Tony
Stern, Michael


Nicholls, Patrick
Streeter, Gary


Nicholson, David (Taunton)
Sumberg, David


Nicholson, Emma (Devon West)
Sweeney, Walter


Norris, Steve
Sykes, John


Onslow, Rt Hon Sir Cranley
Tapsell, Sir Peter


Oppenheim, Phillip
Taylor, Ian (Esher)


Ottaway, Richard
Taylor, John M.(Solihull)


Page, Richard
Taylor, Sir Teddy (Southend, E)


Paice, James
Temple-Morris, Peter


Patnick, Irvine
Thomason, Roy


Patten, Rt Hon John
Thompson, Patrick (Norwich N)


Pattie, Rt Hon Sir Geoffrey
Thornton, Sir Malcolm


Pawsey, James
Thurnham, Peter


Peacock, Mrs Elizabeth
Tracey, Richard


Pickles, Eric
Tredinnick, David


Porter, David (Waveney)
Trend, Michael


Portillo, Rt Hon Michael
Twinn, Dr Ian


Powell, William (Corby)
Vaughan, Sir Gerard


Redwood, John
Viggers, Peter


Renton, Rt Hon Tim
Waldegrave, Rt Hon William


Richards, Rod
Walden, George


Riddick, Graham
Waller, Gary


Rifkind, Rt Hon. Malcolm
Wardle, Charles (Bexhill)


Robathan, Andrew
Waterson, Nigel


Roberts, Rt Hon Sir Wyn
Watts, John


Robinson, Mark (Somerton)
Wells, Bowen


Roe, Mrs Marion (Broxbourne)
Wheeler, Rt Hon Sir John


Rowe, Andrew (Mid Kent)
Whitney, Ray


Rumbold, Rt Hon Dame Angela
Whittingdale, John


Ryder, Rt Hon Richard
Widdecombe, Ann


Sackville, Tom
Wiggin, Sir Jerry


Sainsbury, Rt Hon Tim
Wilkinson, John


Scott, Rt Hon Nicholas
Willetts, David


Shephard, Rt Hon Gillian
Wilshire, David


Shepherd, Colin (Hereford)
Winterton, Mrs Ann (Congleton)


Shepherd, Richard (Aldridge)
Winterton, Nicholas (Macc'f'ld)


Shersby, Michael
Wood, Timothy


Sims, Roger
Yeo, Tim


Skeet, Sir Trevor
Young, Sir George (Acton)



Smith, Tim (Beaconsfield)



Soames, Nicholas
Tellers for the Noes:


Spicer, Sir James (W Dorset)
Mr. Sydney Chapman and Mr. Nicholas Baker.


Spicer, Michael (S Worcs)



Spink, Dr Robert

Question accordingly negatived.

Mr. Nicholas Brown: I beg to move amendment No. 53, in page 84, line 20, leave out "1993" and insert "1994".
It was our original intention to construct this debate in such a way as to allow us to have a general debate on general allowances and perhaps accommodate the debate on shipping as well. However, there was so much interest in the shipping allowances—the Chancellor has taken a deep, long and sustained interest in this matter—that we thought it right to have the debate in the manner which we have done. Many Labour Members wish to debate the matter covered by this amendment—that is, a general debate about capital allowances. Equally, Conservative Members are eager to take part in this debate, and I am sure that there will be an equivalent number of Labour Members. It is good that the Chancellor is here to listen to a debate on what is left of our nation's manufacturing base.
The parameters for the debate are well known to every Member of Parliament who represents a constituency with large manufacturing interests. Indeed, I represented such a constituency until yesterday, although I am not sure that that will be the case next week. The decline in economic growth for 10 consecutive quarters has taken its toll. Throughout that period, we have managed to have a balance of payments deficit. We have had a balance of payments deficit even in recession. The deficit now acts as a constraint on recovery. In 10 of the past 13 years since 1979, net investment in new machinery has taken place at less than the rate at which old machinery has been scrapped. Until 1982, the United Kingdom enjoyed trade surpluses in manufactured goods. Since 1983, we have suffered deficits in the same area. Since 1979, two out of every five jobs in manufacturing industry have disappeared, and the Government's response has been feeble in the extreme.
It is the Labour party's contention that some certainty of intervention is required from the Government. Our amendment, as well as being a vehicle for debate, is modest. It simply seeks to extend the time period for the concessions contained in the Bill. That is not a concept that the Chancellor will find difficult—indeed, he has applied the same concept to many other areas of taxation in the Budget.
The amendment is modest, but it will provide some certainty for those who would like to rely on the concessions. I commend it to the Committee.

Mr. Gary Waller: The short-term encouragement of investment in plant and equipment which was provided by the Chancellor's announcement on capital allowances last year was welcome. There are good grounds for believing that it has contributed to the recovery which has clearly begun in manufacturing industry. However, we need a longer-term programme to encourage investment in the United Kingdom, especially investment by small and medium-sized enterprises which are rightly described as crucial to our economic success.
I shall make a brief declaration of interest. My constituency has not only a great deal of manufacturing industry but a number of machine tool companies and I am an adviser to the Machine Tool Technologies Association. It goes without saying that the machine tool industry would like to see a major improvement in capital investment in the United Kingdom. However, it does not seek specific support directed at its own sector. Rather, it

looks to the Government to develop fiscal policies which encourage more smaller companies to invest in the type of equipment which will provide tomorrow's growth.
It is often pointed out that a significant proportion of the largest companies in Europe are located in the United Kingdom. A major proportion of the work force here is employed by those companies. But at the same time relatively few small and medium-sized enterprises develop to become manufacturing giants in their own right. It seems likely that one factor which holds them back is a marked reluctance to invest in high technology modern equipment compared with many of their overseas competitors.
I suggest that that is regrettable, not only because of the opportunity forgone to generate additional employment opportunities, but because smaller companies are particularly important in driving forward innovation. The most modern advanced equipment is often expensive. I believe that we need a strategic policy to help small and medium-sized companies to re-equip and put themselves at the leading edge of technology. That is what the Japanese and others who have enjoyed considerable success have done in the past. It is not called intervention, but it is a policy which encourages investment. It is directed specifically towards smaller firms, which happen to be those which are often placed at a disadvantage because they are more vulnerable than many of their customers and suppliers in matters such as cash flow and because they are reluctant to take risks which might leave them at the mercy of their bankers.
Although Japan, like other countries, has suffered in the recession, it is notable that in recent years Japanese companies have invested twice as much as many others in capital equipment. If we are to get on the same track, we need to follow suit. The Confederation of British Industry national manufacturing council has said that Britain needs to double its level of investment in capital equipment by the end of the decade in order to match our industrial competitors.
In terms of investment, the United Kingdom has remained bottom of the G7 countries and low down among the Organisation for Economic Co-operation and Development countries. In Europe, German economic performance has been particularly notable in recent years. The National Institute of Economic and Social Research has identified low levels of investment in capital as a major deficiency among British firms compared with their German counterparts.
A choice between more generous capital allowances and higher corporation tax is often put. My experience is that, offered that choice, a substantial proportion of companies would be willing to pay a higher rate of corporation tax, provided that it was combined with more positive allowances to encourage investment.
The debate has provided an opportunity to air the issue. I suggest that we need a more focused incentive to investment than the amendment implies. Capital allowances should be more generous than those which currently exist, but they should bring special benefits to smaller and medium-sized enterprises. Above all, they should he targeted to bring about the investment in the type of high technology which is more widely available to some of Britain's most successful competitors and which is becoming increasingly essential. I hope that my right hon. and hon. Friends will therefore consider the need for an appropriate strategy.

Mr. Beith: There are broadly two views about corporation tax allowances and the rate of corporation tax and the hon. Member for Keighley (Mr. Waller) has just advanced one of them. The Chancellor has embraced both of them during the past two years. One view is that we should try to keep the corporation tax rate down and, therefore, not grant a wide range of capital allowances. The other is that capital allowances for investment are more likely to bring about investment and that many business men—I know that this is true—would be willing to accept such a trade-off. They would risk a higher rate of corporation tax, or at least no further reduction, if they could get higher investment allowances.
Those who favour allowances include those who believe that those allowances should be selective or targeted. The hon. Member for Keighley advanced that view. The Labour party has advanced that view from time to time by seeking a restriction to manufacturing industry. It is one thing to target certain things which seem to be for the general good and should be the subject of allowances, such as environmental improvements; it is another to draw a broad distinction between manufacturing industry and services. That cannot reasonably be done. It does not make sense. I say that despite wishing to see British manufacturing industry revived. To impose an artificial division between manufacturing and services would not help British industry.
10.45 pm
In the aftermath of the recession the Government were forced to look for a way to stimulate the economy, and so departed from their previous strong line against more generous capital allowances. In doing so, they probably reflected the views of many business men. Certainly in the consultations that I have had recently with business men, the majority have argued for the allowance route rather than the lower corporation tax route.
If one tells business men to bear in mind the fact that Britain has lower corporation tax than Germany, they say, "Yes, but look at the use that German manufacturers are able to make of their investment allowances, the level of investment and the quality of German manufacturing plant compared with ours". That is a persuasive argument. It leads one to consider the merits of the amendment, which argues for extending the time scale.
Perhaps we can have a sort of Newbury extension to the capital allowances in the light of the fact that there is clearly greater public dissatisfaction over the recession than the Government first allowed. The hon. Member for Newcastle upon Tyne, East (Mr. Brown) said that the Chancellor had readily taken up the concept of extending the time scale into other aspects of tax policy. He carries it also into his view of his job. He is extending the time scale of that as much as he possibly can against all those who are trying to get rid of him.
There probably would be merit in extending the time scale. The Government may have in mind the fact that a cut-off date is sometimes in itself a useful way of stimulating investment, as Lord Howe found out when he was Chancellor. But industry is looking for longer-term encouragement.
Despite my belief that we do not want to get to the point where the Government are choosing what is industry's best investment, trying to run industry and having such a complex system of investment allowances that they are pretending to know better than industry what

is a sensible investment, we must listen, particularly in the face of all the signs of the decline of our manufacturing industry, to the pleas of manufacturers for investment allowances.
There was a case for the Government's decision in the Budget to go back on their previous rather hard line on the issue and there may be a case for keeping it going a bit longer.

Mr. Mike O'Brien: When I spoke recently with local business men and with Coventry and Warwickshire CBI at its annual meeting with local Members of Parliament, two issues emerged that were central to their decision to invest in manufacturing. The first was the need for better incentives, particularly capital allowances, over the longer term to encourage manufacturing investment. The second was the need to have confidence in the Chancellor's management of the economy so that they could have confidence that the Government knew what they were doing and had some sort of long-term strategy which would allow them to invest in their industry. The Budget and the Bill provide neither of those.
My constituency and my region have been hard hit by the recession. In north Warwickshire, unemployment has risen by 135 per cent. since the Prime Minister took office. Federal Express, Burlingtons and Coventry pit have all closed. Daw Mill pit has sought to make redundant 587 men, half its work force. In the west midlands as a whole, manufacturing industry has been devastated. In the past couple of months 640 jobs were lost at Rolls-Royce in Coventry, 100 jobs at British Rail in Walsall, 75 at Courtaulds in Coventry, 227 at Leyland DAF and 160 at Sandwell Contract Services. The list goes on.
Once, local people in the west midlands were proud to see "Made in the west midlands" on products. Unfortunately, that is now all too rare. Britain's manufacturing heartland now has 42 people chasing every job. Indeed, "Made in Britain" is not only on fewer products these days, but more products are imported into Britain having been made in Hong Kong, the United States, France or Taiwan, than we export with "Made in Britain" on them.
Manufacturing investment fell by 13 per cent. between 1989 and 1991. In 1992 it fell by 2 per cent. and it is expected to grow only marginally this year. The decline in manufacturing industry, resulting from the lack of a clear industrial strategy, is the major cause of our balance of trade problems.
Manufacturing activity is now barely above the levels of 1979, while our performance relative to most of our competitors has seen Britain slipping further behind. Many business men see the Conservative attitude to manufacturing investment as that expressed by a recent Chancellor of the Exchequer, who said:
I am at a loss to understand the selective importance attached…to the manufacturing sector."—[Official Report, 9 February 1984; Vol. 53, c. 1009.]
The present Chancellor's recent conversion to the need to give some support to manufacturing industry is an example of too little, too late. The damage has been done. Determined action is needed for recovery and the Bill does not provide that action.
Manufacturing is a key sector of the economy, because it is the engine of growth and the purveyor of technical progress. As a nation, two thirds of our earnings from foreign currency come from manufactured goods. With


the decline in North sea oil, the manufacturing sector is the essential ingredient for solving the balance of payments problem. Failure to support manufacturing investment in the 1980s has resulted in a trade deficit in the middle of a recession for the first time in post-war history. Import penetration is growing. As recovery comes, imports are likely to increase, making the deficit even worse.
If we are to avoid a balance of payments crisis and a collapse of the pound, we must begin to act. Labour's call to extend capital allowances is an important element in an overall package. It recognises the need to boost manufacturing as recovery takes place. Business men know that the Government's deferred tax increases, planned for next year, will hit demand at the very time that they expected to invest more in order to create recovery. They will be concerned about too great a commitment of their companies' finances and resources at the very time when the recovery, such as it is, may be damaged by the Government's deferred tax increases.
It seems that this is the first recovery in history where action has been taken to damp it down before it has really got started. Business men need greater encouragement over the longer term to invest, both now and over the next few years, to ensure that British manufacturing industry can recover and create the goods to meet any new demand that may be created in Britain, rather than allowing that demand to suck in imports. That is why capital allowances are so important.
Capital allowances, however, must be seen as only part of an overall strategy for manufacturing industry. That strategy must include improving the skills of our current work force and improving the education of our young people, our future work force. We must create a highly educated, highly skilled new work force that is able to adapt to the changing demands of business and the international economy.
One set of figures is interesting in this connection—that 27 per cent. of British workers have technical qualifications, whereas 53 per cent. in Germany, 57 per cent. in the Netherlands and 40 per cent. in France have technical qualifications. If we do not increase our skills, we shall be unable to compete on quality. If we cannot compete on the quality of our products, we shall be forced to drive down wages and overheads so as to be able to compete on price. We do not want to see British salaries and working conditions decline to third-world levels. Until Ministers remove the low-skill shackles from workers, Britain will not have a long-term competitive future.
Other key needs include improved infrastructure, particularly the transport infrastructure. We also need to target high technology and high-growth new businesses, with tax allowances for new investment. We need, too, financial institutions that look to the long term, that invest in the long term and that small business men can rely upon to see them through the troughs of recession. It is the lack of a clear industrial strategy to complement capital allowances that is missing in Government policy.
At the moment, business men cannot see any strategy in place. That brings us back to the central issue that business men in my area have relayed to me—a lack of confidence. Business men need a Government who have direction and leadership. The current Chancellor does not inspire confidence in his judgment. He was the Chancellor who

hallucinated about the green shoots that were not there and who promised no devaluation, no leaving the exchange rate mechanism, no VAT rises and no tax rises. How can the country have confidence in the economic judgment of a Chancellor who changes his policies so readily, so quickly and so easily? The Chancellor explained away his U-turns—his S-bends—by saying during the last election campaign that he had no plans to raise taxes: he did not foresee the problems or the length of the recession.
Even if that were entirely true, does not the Chancellor see that that undermines the confidence of business men in his judgment about how the country and the economy should develop? We have a Chancellor whose judgment is unsound and a Prime Minister who took us into the ERM at too high an exchange rate. That suggests that both men at the helm of Britain's economy are quite capable of taking us on to the rocks. Business men know that the judgment of the Chancellor is unsound and that the Budget will do nothing to restore confidence.
Business men know that, if there is any recovery, it will be, in a sense, by accident rather than as a result of the success of Government policy. Britain is now in a more competitive position because of its withdrawal from the ERM, and that withdrawal was a failure of Government policy. Therefore, any possible recovery will be the result not of success of a policy that was pursued over a long period but of the Government's failure to follow their stated policy. In pursuing that policy, which was initiated by the current Prime Minister, more than 10 per cent. of the work force lost their jobs.
Britain needs a long-term policy aimed at full employment, supply side policies directed at skills, infrastructure and investment in plant and machinery. That is needed particularly to boost our manufacturing exports to tackle the balance of payments deficit. Without such policies, the United Kingdom economy cannot increase its productive capacity, competitiveness or growth and unemployed people in my constituency will not find the jobs that they so very much need.

Mrs. Anne Campbell: I do not intend to detain the House very long, but I want to deal with the appalling results of the Government's lack of an industrial strategy in the past 14 years.
The Government's strategy has been based on one simple numerical indicator—getting down inflation. As a result of their rather bungled attempts to reduce inflation we have lost a huge part of our manufacturing industry.
Manufacturing's share has fallen by 6 or 7 per cent. of GDP since 1979. I am sure that, in time-honoured fashion, the Minister will say that it has fallen in other countries and that it is due to the world recession, increased productivity and so on, but it has fallen by only 3 per cent. in Germany and by only 2 per cent. in France. Those figures are not comparable with Britain's huge deficit.
The Government should have looked carefully at the industrial strategy that the Labour party proposed before the last election. By the end of this Parliament, they will have come round to our view, and probably will adopt many of our ideas.
We said that more investment should be made in capital equipment, in training and education and especially in industrial research and development. Such investment is sadly lacking in this country. A comparison of capital spending per employee in other countries shows clearly what that lack of investment is doing. If we take the United


Kingdom's base line as one, the United States and Germany spend about one and a half times as much. France spends 1.6 times as much per employee on capital equipment, and Japan 2.7 times as much. That is why they have better equipped factories, better motivated workers and better management.
11 pm
It is important to explain that, as my hon. Friend the Member for Warwickshire, North (Mr. O'Brien) said, everything is linked, and the lack of training sometimes deters managers from introducing new machinery. It is true that the poor level of training of the average British worker means that in British factories it takes longer to train workers when new equipment is installed than it does in Germany or France. That is due not to an inherent lack of skill in British workers but to a lack of training, and it often makes it difficult for managers to install new machinery.
Incentives are therefore needed. It is right that the time limits should be extended, and I hope that Ministers will consider that idea carefully. We now have an enormous trade deficit in some extremely important goods, such as electrical goods, motor vehicles, textiles, footwear and clothing—all of which are categories in which Britain used to reign supreme, certainly in Europe and probably in the world.
It may seem curious that I, as the hon. Member of Parliament for Cambridge, should speak about manufacturing industry, although most of the companies in my constituency are small high-tech firms. However, several firms in my constituency supply machinery to larger manufacturing industries, and that is the cause of my concern. If the Government provided some incentive for firms to equip themselves better with plant and machinery, the businesses in my constituency would benefit, as they would supply the equipment.

Mr. Roger Evans: Does the hon. Lady accept that the logic of her argument would prejudice software houses in her constituency at the expense of the manufacturing industries to which she referred? What conceivable economic rationale could there be for doing that?

Mrs. Campbell: That is a curious piece of logic, which I am at a loss to understand. Perhaps the hon. Gentleman would like to explain it to me in detail at some stage. Of course I do not accept that investment in manufacturing industry necessarily means that the Government have to do something crazy such as refraining from investing in the computer industry.
Firms in my constituency could supply equipment such as scanning electron microscopes—which few firms in the world make—television transmitters and industrial motor vehicles. We need a thriving manufacturing industry, and the amendment would help that industry, so I hope that Conservative Members will accept it.

Mr. Nelson: The brevity of this debate has been no reflection on its profundity. I have been fascinated by the varied in-depth contributions which have been made on the back of the thoughtful amendment moved by the hon. Member for Newcastle upon Tyne, East (Mr. Brown). I shall dispose of—or rather, deal with—the amendment by saying that it seeks to extend from one to two years the period over which allowances are available, which

would have two important effects. First, it would increase the cost of the new relief by about £700 million over the next couple of years, at precisely the time when we can least afford it. The Committee will be aware that the increase in writing-down allowances provided for in the clause will already give rise to a yield cost of some £700 million over a couple of years, and the amendment would add a further £720 million in the period up to the year 1995–96.

Mr. Nicholas Brown: It would help the debate if the Economic Secretary could tell us how the figures are calculated.

Mr. Nelson: Of course, they have to be guestimates. We hope that they are accurate. It is inevitable that any assessment of the value of a written-down allowance relief has to be based on speculation as to the level of investment that will take place. We can gain some indication from trends—and we have, goodness knows, enough well-qualified people working in the Central Statistical Office and in the Treasury to come forward with a good idea. If it is different, I invite the hon. Gentleman to explain why it would be a lesser cost. Even if it were £200 million less, it would be a considerable addition on top of the substantial relief that the Government have already given.
Secondly, relaxing the time limit would severely weaken the incentive to bring investment forward. It is the case with all time-limited concessions that the peak of activity is concentrated in the period immediately before the measure is due to be withdrawn. Putting back the expiry date clearly defers the incentive to invest quickly before the relief runs out. For the medium term, our view remains that our policy of low rates of tax levied across a broad base is the right one for business. Once confidence is restored, special tax incentives should no longer be required. We therefore see no case for extending the period over which the allowances are to be made available on the basis of the amendment.
My hon. Friend the Member for Keighley (Mr. Waller) spoke about the importance of the machine tool industry. I was most interested in what he had to say. He called for a strategy of more generous capital allowances for small and medium-sized enterprises. That is precisely what we have sought to do in extending the allowance to 40 per cent. I should also mention that in another clause we are increasing the up-front allowance for industrial and agricultural buildings.
he right hon. Member for Berwick-upon-Tweed (Mr. Beith) welcomed the additional relief but called for more. Like my hon. Friend the Member for Keighley, he suggested that some people liked to pay lower corporation tax while others liked enhanced capital allowances. Depending on the circumstances of a firm, one or other will be to its advantage. It is not surprising that there are different views. Our judgment remains that which we made in the mid-80s—that it is better to have much lower levels of corporation tax on the stream of profit and income than to have the special selection and second guessing which belie capital allowance policy.

Mr. Tim Devlin: Unlike some hon. Members who have spoken, I represent a manufacturing constituency. In all the factory visits that I make in the course of my rounds in Teesside, I have never heard any business suggest that it would be happier if corporation tax went up, even if there were an allowance. Firms which


address me on the point want the allowance and the lower rate of tax. They do not want a higher rate of tax and an allowance. They are in favour of the Government's broad strategy of bringing corporation tax down and a little help as well. What has done far more than capital allowances to enhance investment in north-east industry has been Japanese inward investment into the region and the greater emphasis on quality and total quality management.

Mr. Nelson: My hon. Friend is a champion in the House for manufacturing industry in his constituency. He has proved yet again the importance that he attaches to those matters. His words speak for themselves.
The hon. Member for Warwickshire, North (Mr. O'Brien) spoke about recession in manufacturing industry in the midlands. He referred to the importance that he attaches to quality and competitiveness—something on which we agree entirely.
The hon. Member for Cambridge (Mrs. Campbell) spoke eloquently about the small, high technology firms in her constituency and also called for improved capital equipment incentives. We believe that an industrial strategy should rest not just on the delivery of low inflation and low interest rates, but crucially on their longevity. It is vital that we have a period of stability in which low interest rates and low inflation are sustained. If we can add low taxation and deregulation, and if we can build on the special help provided in the autumn statement and the Budget for the automotive industry, that should help many of the areas represented in this short debate.
For all these reasons, I hope that the Committee will agree that what we have brought forward is what the hon. Member for Islington, South and Finsbury (Mr. Smith) has moved for two successive years and called for on behalf of the Opposition. The Government have delivered that—to acclaim, I hope, from both sides of the Committee. It is an expensive relief, and we do not feel able to go further tonight.

Mr. Nicholas Brown: There is a very large audience—supporters of the Government party—here tonight for this important discussion and I know that they will welcome the fact that I have copious notes with which to reinforce the arguments already put in this debate. I know that they will also welcome the fact that I have with me a copy of the Labour party's new document, "Making Britain's Future" —a document which clearly would inform a debate on capital allowances. Given the distinguished nature of the audience, I think it would be right to read the whole document into the record. However, I will not.
I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 115 ordered to stand part of the Bill.

Bill (Clauses 42, 48, 52, 67, 115 and 183) reported, without amendment; to lie upon the Table.

Teesside International Airport

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Chapman.]

Mr. Michael Bates: I am delighted to have this opportunity to raise the future of Teesside international airport and its development and opportunities for development. In this debate I will seek to outline why the development of the airport goes hand in hand with the privatisation of the airport.
There are three reasons why this issue has taken on a new sense of urgency and vigour in recent days. First, at 11 am on Monday 10 May 1993—a date and time that will go down in history—an announcement was made by the Local Government Commission proposing the abolition of Cleveland county and the removal of Darlington from the county of Durham for administrative purposes.
The significance of this announcement is that Teesside international airport is owned jointly by Cleveland county council, with a majority stake of 60 per cent., and Durham county council, with a 40 per cent. stake. Hence, assuming that the Local Government Commission's proposals are accepted, the airport is heading for an uncertain period of transition as discussions take place with the new Durham authority and Darlington, Middlesbrough, Hartlepool, Stockton and Langbaurgh authorities to see whether they wish to take over the shareholding in the airport or to sell, and, if the latter, to whom.
The second reason stems from the decision of my right hon. Friend the Chancellor in his autumn statement to allow proceeds from capital assets disposed of in the current year by local authorities to be used for other capital projects in the county.
Call me an old-fashioned capitalist, Mr. Deputy Speaker, but I think that county councils such as Cleveland and Durham seem to find it difficult enough to maintain our schools and roads, and look after the police and the fire brigade, without dabbling in what is a highly sophisticated and competitive business of running an international airport. Indeed, how often do I receive a clarion call from those local authorities that they are starved of resources. Many of my constituents and council tax payers in Cleveland and Durham may therefore be bewildered as to why these councils wish to retain £20 million of their assets and money tied up in an airport when they have failed to see a dividend on those assets in the past 20 years, and when schools and roads remain in a state of disrepair. The Chancellor's window of opportunity will not be open for long. That is why I am calling on Cleveland and Durham to put the interest of the airport and their council tax payers first by commencing discussions that will lead to the immediate sale of the airport.

Mr. Tim Devlin: The control tower and the runway are in my constituency, whereas the reception buildings are in the neighbouring constituency of Sedgefield. The division between the two local authorities has been deleterious to the development of the airport which has amazing opportunities for developing the regional airport network around Europe, particularly with the growth of inter-regional links and the developing


northern arc within the European Community as markets develop directly between different parts of the nation states without going through the south-east of England.
The other opportunity open to us in the north-east is provided by the over-capacity of the London airports which are unable to service the aircraft and provide the incoming transatlantic routes with the capacity they need and could be serviced equally well by regional airports such as our excellent one in Teesside. We are missing that opportunity because of the short-sightedness of the blinkered socialist directors of the airport authority that we are saddled with.

Mr. Bates: My hon. Friend has taken an interest in the development of Teesside airport and has long supported its privatisation, and I am grateful for his comments tonight.
Having mentioned privatisation, let me explain what I have in mind. The indecision and uncertainty which are bound to result from changes in the ownership of the airport could not come at a worse time for the 140 management and staff at Teesside airport who, under the leadership of Bob Goldfield, their new managing director, have brought the airport back from pre-tax losses of £240,000 in the financial year to March 1992 to a modest pre-tax profit of £134,000 in the year to March 1993.
Although the profit has to be placed in context as it does not take account of debt charges and includes a substantial amount as a result of NATO exercises based at the airport last year, I believe that the management of the airport should be given the chance to take full financial control of the enterprise—in other words, a management buy-out. Such a move would end a period of uncertainty, allow access to the financial markets for development capital and would present the management and staff with a golden opportunity which I have every confidence in their ability to exploit outside the fetters of municipal control.
The third reason why the airport should be privatised is so that capital can be available for the development of the airport to ensure that it can take full advantage of the opportunities thrown up by the liberalisation of EC aviation through the European Community's historic aviation package which came into effect on 1 January 1993 and which will establish a single market in aviation.

Mr. William Hague: I congratulate my hon. Friend on raising a matter which is or great interest to my constituents as well as to his. On EC liberalisation, does he agree that the end of the transitional arrangements of the liberalisation package will open up new opportunities for the airports to have routes from Belfast to Teesside and on to Brussels and that great opportunities are provided by the great demand for flights to the continent and that these opportunities can best be taken up if his proposals are put into effect in future?

Mr. Bates: I am grateful to my hon. Friend for raising that important point. It has long been the view of many of us who have taken an interest in the development of the airport. Of a passenger throughput of some 345,000, some 200,000 was due to the British Midland service to Heathrow. Clearly, if the airport is to have a prosperous future, it will have to diversify and expand its European routes. It is beginning to happen already with British Northern developing services to Brussels and the package tours which will be introduced from next year.

Mr. Nigel Evans: Does my hon. Friend recognise that he is arguing not only for Teesside airport but for a principle? My area in the north-west contains Manchester airport—a leading regional airport which, even recently, has been given a second terminal following a £250 million investment. If released from local authority control, it too could take advantage of the liberalisation of the airways: it could expand far more, and serve people in the north-west—and even those further afield—better than it does now.

Mr. Bates: My hon. Friend makes a valid point. Nothing that I have said this evening applies exclusively to Teesside; it could apply equally to many regional airports. Indeed, it applies to every local authority, not just to Cleveland and Durham. Airports such as East Midlands and Leeds are currently going through the process that I am advocating. Air traffic competition could be liberated.
I believe that Teesside has the potential to rival Newcastle as the north-east's major airport. Indeed, that was the recommendation of the Stratford report, commissioned by the then Minister for Aviation and Shipping, Mr. Clinton Davis, in 1978. The report went into great detail about which of the three regional airports—Teesside, Newcastle and Carlisle—should be designated the growth airport. That was in the days when the Labour party still believed in a centrally planned economy. We have been denied the opportunity to find out whether they still do; the Opposition Benches are empty.
The Stratford report recommended Teesside airport because of the scope for extending the 7,500 ft runway to carry the new Boeing 747s; because it was less likely to be fog bound, which is why it was used by the RAF as a base for Vulcan bombers until 1962; because the majority of potential passengers lived nearer to Teesside than to Newcastle or Carlisle; and because it benefited from more available air space than either of its rivals. However, when the report was published, its recommendation was overturned, and the prestigious category B status was given to Newcastle. Teesside was banded in category C.
It is interesting to consider the fortunes of the two airports since 1978, when that decision was made. In 1978, Newcastle airport had 880,000 passengers; the figure for Teesside was 321,000. Last year, Teesside airport had a passenger throughput of 345,000—an increase of just 7.5 per cent. In contrast, Newcastle airport's throughput had increased to 2 million—an increase of 127 per cent., almost 17 times the growth in passenger numbers at Teesside. That is why Newcastle was able to deliver a £1.5 million dividend to its owners last year, which I do not resent.
I am pleased to see that my hon. Friend the Member for Hexham (Mr. Atkinson) is present, as I am sure that he takes a considerable interest in the matter. I do not begrudge that money to his authority; none the less, it will be a long time before Cleveland and Durham receive anything in return for their investment in Teesside airport. They have said that the prospect of a dividend remains "a long-term goal".
Another aspect of the airport that must be mentioned is the 250 acres of prime development land on the site. That land could be developed as a business or technology park were it not for planning restrictions which insist that any development should be airport related. Airport related! My only prerequisite is that any investment should be related to prosperity and jobs. If the councils will not make the decision to remove that restriction, Teesside


development corporation should be allowed to expand its area of operation to cover the airport and ensure that planning decisions are not political decisions, just business decisions.
Here we have an airport that has been a victim of 1970s-style central planning whose resources for development have been limited by local authorities but which serves a dynamic and developing area. Its management have the skills to turn the airport into a profitable venture within a year. The Chancellor has provided a golden opportunity for local authorities to sell their stake in the airport and to use the proceeds to benefit the communities that they serve. We have the third European Community aviation package which gives huge potential for the development of air traffic.
Our plea this evening is clear. For stability, for success, for Teesside, we appeal to Cleveland and Durham county councils to release this venture from the dead hand of municipal government and allow the professionals and private capital to develop the airport into a fitting gateway to the most dynamic industrial area in the country, Teesside.

The Parliamentary Under-Secretary of State for Transport (Mr. Steve Norris): May I congratulate my hon. Friend the Member for Langbaurgh (Mr. Bates) on bringing forward this important subject this evening. I recall that he and I were denied a breakfast-time rendezvous on the Consolidated Fund Bill just before Christmas to discuss this issue and I fully recognise his concern about the airport and its future. I am delighted to see my hon. Friends the Members for Stockton, South (Mr. Devlin) and for Richmond, Yorks (Mr. Hague). My hon. Friend the Member for Richmond and I are somewhat of an endangered species these days as probably the only two living Tory by-election victors in existence or, should I say, not in captivity. Perhaps that is inappropriate. Perhaps I should have said "in captivity". Nevertheless, I am delighted to see him here and to welcome his contribution and also to see my hon. Friends the Members for Hexham (Mr. Atkinson) and for Ribble Valley (Mr. Evans), not forgetting the presence of my hon. Friend the Member for Chipping Barnet (Mr. Chapman) who, I know, takes a tremendous interest in all these matters.
Teesside airport operates as a public airport company, Teesside International Airport Ltd. The company acquired the airport undertaking, property and certain other assets and liabilities from Cleveland and Durham county councils on 1 April 1987 under part II of the Airports Act 1986. The company is therefore, as my hon. Friend says, wholly owned by the two county councils and it is very much a public sector entity.
Our general attitude towards regional airports is that we want them to develop and prosper, handling all the traffic that they can attract, not only for the benefits that they can bring for those who live in the regions but for the contribution that they can make to relieving pressure on the London airports.
The area in which Government are uniquely well placed to help is in international negotiation. For nearly a decade the United Kingdom has put the opening up of new routes

high on the agenda and major changes have been delivered, especially within the European Community. Since 1 January this year traffic rights have been available for all Community air carriers to operate air services on virtually any route within the Community, whether scheduled or charter, passenger or cargo. Complex procedures for approving fares have been swept away. We have created a climate in which air services and fares can become more competitive and more responsive to what the customer wants.
I am very proud of the role that my right hon. Friend the Secretary of State played during the time of the British presidency in pressing these important issues to the stage where the third liberalisation package represents a major advance in the progress of the single market and is an issue in which Britain has consistently been in the lead.
Coming closer to home, I wonder if I may detain my hon. Friends with just a word about the concern that I know the managers at Teesside airport feel over what they see as a risk to the continuation of services to London, particularly to Heathrow. I understand the desire of airports like Teesside to maintain strong air services with the capital—at the moment, Teesside has five flights to Heathrow each weekday—and I have no doubt that the local community, especially businesses, will do all that it can to support this provision of services. The management of the airport also has a role to play through the provision of good quality airport services for people to enjoy as they connect with their flights. But I am bound to say that I agree with the recent Civil Aviation Authority report which said that those sorts of service, although clearly important for the regions that they serve, must stand up commercially and that there are no grounds for distorting the air services market to "protect" those regional services to congested airports.
I want to make a number of points in the debate and I will, of necessity, cover them only briefly. First, the decision on which routes to serve is now very much one for the commercial decision of airlines. The present system of take-off and landing slot allocation and regulation at our busiest airports means that airlines can continue to operate their existing services for as long as they wish to, because the slots they hold and operate carry historic rights, sometimes referred to as "grandfather rights". I can assure my hon. Friend that British Midland can therefore continue to operate the service between Teesside and Heathrow for as long as it wishes. I have no reason to believe that British Midland has any intention of withdrawing that service.
Although some of our regional airports have seen their services to London cut, there is none the less a healthy market in the provision of air services between London and the regions. It must be for the providers of those services, the airlines themselves, to decide whether it is in their commercial interest to continue to do so. Certainly, it would not be right for me to dictate from Marsham street what level of services should be provided to each point or, as the Teesside airport managers suggested to the CAA, what level of subsidy should be paid to airlines to maintain those services. We have been down that path before and, frankly, it does not work. Unnecessary, artificial market constraints or supports inevitably lead to artificial and unsustainable markets. In a market-led air transport industry geared to meeting passenger needs carriers must retain the ability to adjust their services and schedules in response to changes in consumer demand.

Mr. Nigel Evans: Does my hon. Friend agree that it is important not only to maintain the links between the regional airports and London, but to establish and reinforce the links between regional airports and the international airports? I am thinking of Manchester here. There are many people who do not wish to travel from the regions down to London to take international flights. They would far prefer to take their flights from the areas in which they live to the destination to which they wish to go.

Mr. Norris: My hon. Friend is right. As I said at the beginning, the Government's attitude is very clear. First, passengers should dictate where air services are provided. I agree with my hon. Friend that there is a great deal of good sense in avoiding the congestion around the major London airports. Heathrow is not the only airport that serves London. None the less, my hon. Friend is entirely right that where there is an opportunity for passengers to travel via Manchester, and it is in the operators' interest therefore to provide those services, the present Government would certainly see no difficulty whatsoever in encouraging that and in a sense providing a regime in which British Midland or any other operator can build on those services and offer to service local businesses.
On that question—this is related somewhat to that issue—I know of suggestions that we should use article 9 of the EC regulations effectively to ring-fence slots for airports such as Teesside at Heathrow. I do not believe that that would be valuable. First, I do not believe that it could ensure the survival of a particular service. One can ring-fence the slot, but ring-fencing the slot in no sense guarantees that the service itself can continue. That must be a matter for the commercial decision of the operators. In any event, ring-fencing slots for specific services introduces the kind of rigidity into the slot allocation system that we believe would be wholly unwelcome.
I suspect that many regions would want the slots for their Heathrow services ring-fenced. My right hon. Friend the Secretary of State has already had representations from places other than Teesside wanting ring-fencing. Incidentally, ring-fencing relates to slots at particular, specified times and not just an overall daily total. Clearly, if we were to respond to all those demands we would impose an intolerably restrictive regime at Heathrow.
One point that I often make when we consider this subject is that British Midland, for example, has managed to increase the proportion of slots that it holds at Heathrow from 3 per cent. in 1979 to 14 per cent. now. That has happened despite the existence of grandfather rights. Grandfather rights, however much they may seem to entrench existing users of slots, none the less provide a regime in which there is a regular changeover of operators, as individual operators respond to where they think market opportunities are and withdraw capacity from certain routes to make it available to others. The less we do to make rigid slot allocations the better. That will ultimately help airports such as Teesside, which will not be disadvantaged.
Teesside is not an especially isolated area. I always point out that there is an excellent train service which takes only two and a half hours to King's Cross on the east coast main line which, as my hon. Friend will know, has recently been improved through electrification at a cost of £550 million. In addition, both Newcastle and Leeds-Bradford

airports are within 60 miles by road of the Teesside area and offer flights not only to Heathrow, but to other European destinations, such as Amsterdam or Paris.
It is too easy and too tempting to focus on Heathrow to the exclusion of all the facilities around London. Heathrow, as I said, is not the only London airport. Gatwick, Stansted and London City airport, which I always mention when I can, are excellent airports which offer excellent connecting flights to many international destinations.
My hon. Friend referred to the proposals for the demise of Cleveland county council—[HON. MEMBERS: "Hear, hear."] That is clearly a popular proposition in the House this evening. As my hon. Friend said, the Local Government Commission's draft recommendations for Cleveland and for Durham were put out to public consultation earlier this week. My right hon. Friend the Secretary of State and other Transport Ministers have foreseen some complications for transport if shire counties are abolished, although their retention is not necessarily the best solution. I understand that Teeside airport is not specifically mentioned in the draft recommendations. I anticipate that my right hon. and learned Friend the Secretary of State for the Environment will draft regulations to cover issues such as the transfer of property rights and liabilities of any authorities that cease to exist. There are well-tried arrangements for transfers to successor local authorities. Meanwhile, if the airport company has any views, it should make them known to the Local Government Commission as part of the public consultation process.
My hon. Friend spoke about privatisation. The thrust of what both he and our hon. Friends asked was why we did not require local authorities to dispose of their airport interests. I know that my hon. Friend is an assiduous reader of Hansard, so he will know that I answered a question tabled by our hon. Friend the Member for Bournemouth, East (Mr. Atkinson) on precisely that subject earlier this week. We have made no secret of the fact that we want to encourage local authorities to sell their airport interests. We believe that privatisation would bring benefits to local authority airports, as it has brought benefits elsewhere. We believe that it would encourage enterprise and efficiency and that it would enable airports to build on the advantages that the creation of the public airport companies provided. We believe, too, that the private sector has the resources and the willingness to invest in local authority airports on a far greater scale than we have seen so far. The British Airports Authority was privatised in 1987 and it has gone from strength to strength since. It has maintained a high level of investment, not just in the south-east, but in Scotland, too.
The Government have helped Teesside airport over the years by issuing borrowing approval to its controlling authorities for operational investment in the airport. However, with the increasing pressure on public expenditure, we are simply unable to maintain our support for investment in local authority airports on anything like the scale of recent years. My right hon. Friend the Secretary of State made it clear, in his announcement following the autumn statement, that the amount of public expenditure provision available for local authority airports in the future will be limited—only £12 million this year—and that his first priority will be to enable airports to make necessary safety and security-related investment.


My hon. Friend the Member for Langbaurgh referred to development proposals for the unused land at Teesside. My Department has not seen any development proposals involving opening access to the south side of the airport, and I can well understand that the cost of roads and other infrastructure there could be substantial. I know that the airport company is discussing with the county councils the possibility of their providing the access road and services. For the sort of scheme which the airport company is thinking about, the best course may be for a joint venture project to be established with the private sector to take that development project forward. In any event, there is no prospect of development of that sort being funded through supplementary credit approvals for the airport company.
We believe that it is for the local authorities which own airports to decide whether to dispose of their interests, taking into account the needs of those who live in the areas involved and the customers who use the airport. In taking those decisions, local authority shareholders will be aware that, if they want their airports to continue to develop, they will need to use internal resources or look to the

private sector to fund major expansion. We have talked on many occasions about joint venture companies. In other cases, the private sector may be able to provide a specific facility, instead of the airport company. In many cases, the best approach will be simply the sale of majority holdings in public airport companies.
My hon. Friend made the important point that there is the temporary relaxation in the rules for the use of capital receipts which applies to the proceeds of the sale of shares in public airport companies. That provides a particular attraction to them in selling now. We greatly welcome the fact that the major shareholders in East Midlands airport have decided to test the market for their shares.
I have a great deal of sympathy—as I know my hon. Friends have—with what my hon. Friend the Member for Langbaurgh said about Teesside airport. I pay tribute to the concern that he has expressed on this subject over a long period. I hope that Teesside and other airports will recognise the considerable opportunities and advantages that are available to them from pursuing the sort of policies which my hon. Friend has outlined this evening.

Question put and agreed to.

Adjourned accordingly at twenty minutes to Twelve midnight.